Net Capital Losses: How to Carry Forward or Carry Back to Reduce Your Taxable Income

Understanding Net Capital Losses

A net capital loss from prior years is the amount by which your allowable capital losses (50% of your total capital losses) exceed your taxable capital gains in a given year. If you have a net capital loss in a year, you cannot use it to offset other types of income (e.g., employment or business income). However, you can carry these losses forward to offset taxable capital gains in future years or carry them back up to three previous years.

Carry-Forward

You can apply unused net capital losses to future years indefinitely to offset taxable capital gains.

Carry-Back

You can carry back unused net capital losses up to three years to recover taxes paid on previous capital gains.

Tax Savings

By using net capital losses, you can reduce your taxable income and lower your tax payable in years where you report capital gains.

Example

Samantha had $10,000 in allowable capital losses and $6,000 in taxable capital gains in the current year. Her net capital loss for the year would be:

Net Capital Loss = Allowable Capital Losses - Taxable Capital Gains

Net Capital Loss = $10,000 - $6,000 = $4,000

What Samantha Can Do

Samantha can:

Carry forward the $4,000 to offset future taxable capital gains.

Carry back the $4,000 to offset taxable capital gains in prior three years, by using Form T1A – Request for Loss Carryback.