1256 Security Loss Carry Forward (How many years?)

[hamptonc]

Hello,

This is my first time on this forum. I am still new and learning a lot from it.

I have capital losses in 2020 from 1256 securities (SPX options). I understand that I can use it back to three years as loss carryback to offset any 1256 capital gains in previous years.

For the unused 2020 capital losses, can I carry it forward against future 1256 security gains indefinitely? For example, I have $100,000 of 1256 loss in 2020, and the 1256 gains of $20,000 in 2021 and $30,000 in 2022. Can I use this $100,000 loss in 2020 to offset $20,000 in 2021 and $30,000 in 2022, and the remaining $50,000 loss for gains in 2023 and afterwards?

In short, my questions are (A) whether there is a limit in losses that can be carried forward against future 1256 gains (like the $3,000 limit to deduct from ordinary incomes) and (B) whether these losses can be carried forward for many years instead of just only for the next one year.

Thank you so much in advance!

 

[tiddlywinks]

Here is a current article from Green Trader Tax discussing recent NOL carryback changes...
https://greentradertax.com/cares-act-allows-5-year-nol-carrybacks-for-immediate-tax-refunds/

As for Carry forwards, here is an excerpt from the same article...

"CARES temporarily suspends tax-loss limitations from the Tax Cuts and Jobs Act (TCJA) for 2018, 2019, and 2020. TCJA had repealed two-year NOL carrybacks, only allowing NOL carryforwards limited to 80% of the subsequent year’s taxable income. As you may remember, TCJA introduced the excess business loss (EBL) limitation, where aggregate business losses over an EBL threshold ($500,000 for married and $250,000 for other taxpayers for 2018) were considered an NOL carryforward."

Here is THE MOST IMPORTANT paragraphs applicable to NOL carry forwards and carry backs...

If you have a net operating loss (NOL) from business activities in 2018, 2019, and 2020, you should consider filing NOL carryback claims going back five years.

Active traders who are eligible for trader tax status (TTS) are considered businesses with NOLs. A TTS trader might have significant trading expenses or Section 475 ordinary losses comprising an NOL.

Without all of your particulars, since you mentioned you are "still new and learning", I'm going to say you will be stuck with the standard default method for realizing your capital loss... that is, deductible at the rate of 3K per year, with unlimited time to be "used". Of course, if you are now or at some future point in time qualified for TTS (Trader Tax Status) in the eyes of the IRS, you should be talking with accountant, not an anonymous forum. FWIW, Robert Green at Green Trader Tax is THE expert in trader taxation.

Good luck