What this line means
The short-term capital loss you are carrying forward from last year’s return. If your total capital losses exceeded your total capital gains plus the $3,000 annual deduction limit last year, the excess short-term loss carries over to this year. Enter it here as a negative number in parentheses.
Does this apply to you?
- You had net capital losses exceeding $3,000 last year and the carryover was classified as short-term
- You completed the Capital Loss Carryover Worksheet from last year’s Schedule D instructions
- You have been carrying forward capital losses for multiple years after a large loss event
Easy to overlook
The $3,000 limit applies to the combined net loss, not each category You can deduct up to $3,000 of net capital losses against ordinary income each year ($1,500 if married filing separately). Losses beyond that carry forward. The $3,000 limit applies after netting short-term and long-term gains and losses together, not to each category separately. 1 IRS Schedule D instructions — Line 5
Short-term carryover retains its character A short-term loss carried forward stays short-term in future years. This matters because short-term gains are taxed at ordinary income rates, so a short-term carryover offsets income that would otherwise be taxed at higher rates. Do not reclassify last year’s short-term carryover as long-term. 2 IRS Capital Loss Carryover Worksheet
Watch out for this
Forgetting to carry forward the loss. Capital loss carryovers do not appear on any form the IRS sends you — they only exist on your prior-year return’s Capital Loss Carryover Worksheet. If you switch tax software or preparers, the carryover can easily be lost. Always check last year’s Schedule D for unused losses.
Footnotes
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IRS Schedule D (Form 1040) Instructions, Line 5. https://www.irs.gov/instructions/i1040sd ↩
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IRS Schedule D (Form 1040) Instructions, Capital Loss Carryover Worksheet. https://www.irs.gov/instructions/i1040sd ↩