# Sec 10.2 Rollover Capital Losses

If an investor has a net capital loss for the year, they can deduct up to \$3,000 of the capital loss against earned income that year. If this investor made \$100,000 from their job, they could deduct \$3,000 to bring their taxable income to \$97,000. The deduction results in a lower tax obligation.

In this example, \$10,000 of the \$13,000 net capital loss is leftover. Any leftover portion “rolls over” to the following year, which helps the investor avoid taxes on future gains.

Does this mean that only \$3,000 of each year’s cap losses can be deducted for said year but there’s no limit to how much rollover losses (from previous yrs) can be deducted?

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Yep! You’ve got it, @Mass_coffee_louse. Only \$3,000 of net losses can be deducted against other forms of income. Any “leftover” losses roll over to the next year. This occurs annually until the losses run out.

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So just to clarify, the following year, would \$10,000 be deducted or is it a \$3,000 cap all together?

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The investor had a \$13,000 net capital loss for the year. \$3,000 was deducted against their earned income, leaving \$10,000 of “leftover” losses.

The next year, the investor basically starts with a \$10,000 loss. Let’s assume they make no trades the entire year. If so, they’ll deduct another \$3,000 against their earned income, leaving \$7,000 of “leftover” losses. This would happen on repeat until the “leftover” losses were gone.

Let’s reset and assume the previous paragraph disappears. Alternatively, they could use the \$10,000 “leftover” losses to net against gains. For example, let’s assume the following year the investor places a number of trades and ends with a \$15,000 net gain. They would net the \$10,000 of “leftover” losses from the previous year, resulting in a \$5,000 net capital gain. They would pay taxes on the \$5,000 net gain, but this is obviously better than paying taxes on a \$15,000 gain.

I hope this helps!

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Ah, so the \$3,000 limit is for deductions against earned income.

Thanks for clarifying

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