I read with interest your July 2017 article on how a loss carry-over applies to offset current gains, but only partially to offset taxes otherwise due on conversions to Roth IRAs, but I now wonder if a current year’s stock loss could be used to offset dollar-for-dollar a current year’s conversion. Can you help me?
There have been no changes to how capital losses are handled since 2017. To take a loss, you must sell the asset for less than its “basis” at a time that is more than 30 days before or after purchasing the asset. If a purchase occurs within that 60-day window, the loss is disallowed due to the wash sale rules. In other words, if you want to use the loss on your tax return, wait at least 30 days after the purchase date and do not buy it back within 30 days of the sale.
Allowable losses must first be used to offset gains realized during the year the loss was incurred. If that results in a net loss, then the loss can offset other income like that from a Roth conversion but — only up to a maximum of $3,000. If the net loss is greater than $3,000, the excess carries forward to the following tax year. During that next year, it is again used first toward offsetting gains in that year, then other income but again, only up to $3,000.