Short term cap gains with income carryover losses

[Nick Frey]

Short term cap gains basically get counted as income...you have $100k income and $100k short term cap gain, you basically have the same as $200k income.

I've been very careful over the years and have tremendous carryover losses within ordinary income (active losses as RE professional).  If I were to sell a flip this year and earn $100k short term cap gain, does this add to a large negative carryover loss and essentially just eat into my "banked carryover"?  I.E. does this mean I can avoid paying short term cap gains?

[Ashish Acharya]

Originally posted by @Nick Frey:

Short term cap gains basically get counted as income...you have $100k income and $100k short term cap gain, you basically have the same as $200k income.

So you have never used your Net Operating Losses when you generated them in the previous years? You didn’t file 1145 for tentative refund within 12 months or carry the NOL back to previous years to get the refund?  If you didn’t carry it back, and if no election was made to carry it forward, you might want to talk to your CPA. you don’t want to lose all those losses you accumulated. 

Also differences exist between NOL generated before 2018 vs between 2018- 2020. CARES act Made significant changes to NOL generated between 2018-2020. 

When Should the Election to Forgo an NOL Carryback Be Made?

Taxpayers with a loss should consider making the election to forgo an NOL carryback if—

• 1. carryback of the NOL will offset enough of the income in the year to which it is carried to free up tax credits that may be lost in part if carried forward,
• 2. they will be in a higher tax bracket in the carryover years than in the carryback years (after considering the time value of money),
• 3. the carryback of the NOL would cause the taxpayer to lose tax benefits (e.g., IRA deductions, personal exemptions, itemized deductions, etc.) in the carryback year,
• 4. the carryback of the NOL generates alternative minimum tax (AMT) in the year to which it is carried, or
• 5. the NOL is small and it is not practical or cost-effective to carry it back

If you ignore the issue above. 

Yes, if your are talking about the net operating losses (not passive activity losses), then it would eventually net with the STCG if you don’t have other capital losses. You have to do something extra (election) on the net operating losses to be able to use that in current year. 

[Nick Frey]

Originally posted by @Ashish Acharya:

Also differences exist between NOL generated before 2018 vs between 2018- 2020. CARES act Made significant changes to NOL generated between 2018-2020.

Yes, if your are talking about the net operating losses (not passive activity losses), then it would eventually net with the STCG if you don’t have other capital losses. You have to do something extra (election) on the net operating losses to be able to use that in current year.
  

Thanks for that!  I've not carried back because I've been able to essentially not pay taxes for the last 10yrs by running multiple businesses, expensing everything, and investing profit into assets with significant depreciation losses.  All tax years have had zero income tax and only some FICA, which--correct me if I'm mistaken--cannot be offset by anything but simply not making the income (i.e. cannot be offset even by active losses from other pass-through entities).

All NOL have been carried forward, and I don't believe I'm at risk of dropping any NOL in the next couple years because the oldest carry forward at this point is probably from 2016.

What changes in treatment of NOL did CARES make for 2018-2020?

Is it only STCG that are offset by NOL due to their treatment as ordinary income?  Or does NOL affect LTCG as well?  If it's only affecting STCG, wouldn't it be an interesting strategy to roll STCG proceeds into a long-term asset immediately that would create paper depreciation losses in the case one could qualify them as active?

I've started at the outset by carefully considering "total return" that hinges on leverage and tax efficiency, so I'm always looking for how to scale what I do while maintaining focus on that theme.

[Ashish Acharya]

Originally posted by @Nick Frey:

Originally posted by @Ashish Acharya:

Also differences exist between NOL generated before 2018 vs between 2018- 2020. CARES act Made significant changes to NOL generated between 2018-2020.

Yes, if your are talking about the net operating losses (not passive activity losses), then it would eventually net with the STCG if you don’t have other capital losses. You have to do something extra (election) on the net operating losses to be able to use that in current year.
  

Thanks for that!  I've not carried back because I've been able to essentially not pay taxes for the last 10yrs by running multiple businesses, expensing everything, and investing profit into assets with significant depreciation losses.  All tax years have had zero income tax and only some FICA, which--correct me if I'm mistaken--cannot be offset by anything but simply not making the income (i.e. cannot be offset even by active losses from other pass-through entities).

All NOL have been carried forward, and I don't believe I'm at risk of dropping any NOL in the next couple years because the oldest carry forward at this point is probably from 2016.

What changes in treatment of NOL did CARES make for 2018-2020?

Is it only STCG that are offset by NOL due to their treatment as ordinary income?  Or does NOL affect LTCG as well?  If it's only affecting STCG, wouldn't it be an interesting strategy to roll STCG proceeds into a long-term asset immediately that would create paper depreciation losses in the case one could qualify them as active?

I've started at the outset by carefully considering "total return" that hinges on leverage and tax efficiency, so I'm always looking for how to scale what I do while maintaining focus on that theme.

Nick you still have to file the election to forgo the carry back even if you don’t have taxes in the PY. I suggest talking to a tax pro.

NOL offsets both LT and ST.