Your client sold a position for a $60,000 long-term loss in 2023, never amended a 2022 return that overstated income, and now realizes her 2025 estimated payments are $8,000 light with two quarters left. Carryovers, timing, and refund claims are the three levers that fix or break the current-year plan.
A carryover is a tax attribute the prior return parked on a worksheet and pushed forward. Missing one is preparer error under Circular 230 §10.22.
Capital loss carryover. Net capital losses offset gains in full, then up to $3,000 of ordinary income ($1,500 MFS). Unused balance carries forward indefinitely, retaining short-term or long-term character. Death wipes the carryover; it never flows to the surviving spouse on a later separate return or to the decedent's estate. Tracked on the Schedule D Capital Loss Carryover Worksheet.
Net operating loss. A business or casualty loss that drives taxable income below zero creates an net operating loss (NOL). Post-2017 NOLs:
- Carry forward indefinitely, no carryback (farming and certain insurance NOLs keep a 2-year carryback)
- Limited to 80% of taxable income computed before the NOL deduction
Common mistakes
- Treating a deceased spouse's capital loss carryover as inheritable. The carryover dies with the decedent; only losses attributable to the surviving spouse on a joint return survive.
- Applying the 2-back / 20-forward NOL rule to a post-2017 loss. Post-Tax Cuts and Jobs Act (TCJA) NOLs are forward-only, indefinite, and capped at 80% of taxable income.
- Using 100% of prior-year tax as the safe harbor when prior AGI exceeded $150,000. The correct figure is 110%.
Bottom line
- Capital loss carryover: deducts up to $3,000 ordinary per year ($1,500 MFS), unused carries indefinitely, ST/LT character preserved
- NOL post-2017: forward only, indefinite, capped at 80% of taxable income before the NOL
- Estimated tax safe harbor: lesser of 90% current or 100% prior tax (110% if prior AGI > $150,000)
- Refund claim deadline: later of 3 years from filing or 2 years from payment on Form 1040-X, capped by lookback-period payments
Exam shortcut
Silo discipline. Capital loss stays Schedule D, NOL stays Form 1045, QBI stays Form 8995, AMT credit stays Form 8801. Silos do not cross. Safe-harbor multiplier. Check prior AGI first. Above $150,000 ($75,000 MFS) means 110%; otherwise 100%. Refund deadline. Apply the 3/2 rule, then test the lookback cap. A timely claim with payments outside the lookback window still recovers nothing.
The full lesson (about 2,796 words, 19 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
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