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I am using Turbo Tax for these calculations. Before entering my investment info/capital gains, I had a federal refund of $272. After entering my capital gains and investment info, I owed $1900, for a change of around $2372 due to investments. My AGI (after itemized deductions) is in the 80k tax bracket, which is 22%. I am filing as married jointly.

I did a fair amount of day trading options, so these are all short-term capital gains, which are just taxed at ordinary income levels, right?

Numbers from 1099-B: Proceeds : 870,027 Cost (or basis) : 866,589 Wash sale loss disallowed : 8554

870,027 - 866,589 = 3438, plus 8554 wash sales = 11,992, which is what TurboTax is displaying as their summary for this income. But 22% of this is $2638.

There is also a Section 1256, -$1200, which I thing is for options contracts held at the end of the year, unrealized gains. I had to look this up, still don't quite get it, but it sounded like these unrealized gains were somehow supposed to be counted.

So if I take off this $1200, 11992 - 1200 = 10,792 x 22% = $2374, which is almost exactly the change I'm seeing in TurboTax.

However, I had a capital loss carryover of $4800. I thought this was supposed to be a direct reduction from my capital gains, but it looks like it's not counting at all.

Why isn't my capital loss carryover reducing my capital gains taxes?

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  • What is line 6 and line 14 on your Schedule D?
    – Craig W
    Mar 20 at 2:50
  • Based on his statement that I had to look this up, still don't quite get it, but it sounded like these unrealized gains were somehow supposed to be counted, I took that statement to mean that he was unsure about the Section 1256 issue. Based on the other info provided, I have no idea about the carry forward loss problem. Mar 20 at 19:32
  • @CraigW I've been trying to find Schedule D; was using TurboTax Premier Online and finally realized it doesn't allow you to view the forms until you purchase it. Then I found out it basically can't handle all my trades (hundreds). In a review step, it said it needed sale price info for a trade, tried to pull up all of them into some tiny embedded web form, and basically crashed the browser. One time it resolved, and the form and entries were all misaligned. Completely unusable. I think I'll have to go do a Desktop version and start over. SIGH. Thanks for your replies.
    – user26270
    Mar 20 at 22:31
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I am not a tax adviser nor do I have any personal experience with this situation so take this with a grain of salt. As I understand it, Section 1256 contracts are marked-to-market daily and the unrealized gains and losses open at the end of the year are reported at the end of the year for tax purposes.

Here are some references:

A Section 1256 contract is a type of investment defined by the Internal Revenue Code as a regulated futures contract, foreign currency contract, non-equity option, dealer equity option, or dealer securities futures contract. What makes a Section 1256 contract unique is that each contract held by a taxpayer at the end of the tax year is treated as if it was sold for its fair market value, and gains or losses are treated as either short-term or long-term capital gains.

General rule

(1) each section 1256 contract held by the taxpayer at the close of the taxable year shall be treated as sold for its fair market value on the last business day of such taxable year (and any gain or loss shall be taken into account for the taxable year)...

This would explain why the end of year $1,200 loss is being utilized by TurboTax.

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  • It sounds like OP knows the Section 1256 loss is being applied, the question is why capital loss carryover is not being applied.
    – Craig W
    Mar 20 at 18:37
  • @CraigW is correct; I didn't get everything about Section 1256, but I did understand that the unrealized losses there were supposed to be applied
    – user26270
    Mar 20 at 22:28
  • and yes, the main question is why the capital loss carryover is not being applied
    – user26270
    Mar 20 at 22:38

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