Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

May 30, 2013
How do I correct mistakes on claiming a Capital Loss Carryover?

I had a CPA prepare my taxes in 2007. He did a very thorough job.

The following year, I made a big mistake: I used a very popular tax prep program with the initials TT. Now, in 2012 I have discovered that I failed to enter a capital loss carryover of $98,000 on my 540D (California taxes). I entered the right amount for the federal cap loss carryover when I filed the following year - 2008.

So from 2007 to the current year 2012, no CA capital loss carryover was entered. Now, 5 years later, the federal capital loss carryover has been whittled down to about $45,000.

I have a couple of Capital Loss Carryover (CLCO) questions.
1) I believe I can amend back 4 years. Is that right?

2) The 540D capital loss carryover worksheet (CLCO ws) is a carryover to the state tax capital loss and not the federal capital loss carryover for the following year?
It's just a state figure, right?

There are two different carryover figures. The value calculated using the CLCO worksheet in the 540D instructions is used on next year's state tax form, not next year's 1040 schedule D.

3) A lot of people have been telling me to just enter the Fed cap loss carryover for 2012 into the value for the 2012 state 540D form and be done with it. I don't think this is right. I think I need to work thorough the CLCO worksheets from 2007 till present and enter that figure for 2012, and then re-file back to 2008 with the right figures.

4) Finally, this should only affect my State tax forms, not my federal forms. Am I right?

Fortunately, I'm still "deep into" the Carryover, so in the years that I can't amend the CA forms I lost a deduction that would have netted me higher refunds. I won't be owing anything but I lost out on refunds. I don't believe I'll come close to using up the carryover for some time to come.

Thanks.
Sleepless with Worry in Moraga
Greg

Thank you for your questions. Please see the answers to your questions below in italics.

1) I believe I can amend back 4 years (is that right?). Your understanding is correct. The California statute of limitations is generally 4 years, so if you filed your tax returns on April 15 every year, the oldest tax return you could amend would be the one filed on April 15, 2010, for tax year 2009. The deadline to amend a tax return for tax year 2008 filed on April 15, 2009, would generally have expired on April 15, 2013.

2) The 540D capital loss carryover worksheet in the 540D instructions is a carryover to the state tax capital loss and not the federal capital loss carryover for the following year? Correct.

It's just a state figure right? Correct.

There are two different carryover figures. The value calculated using the CLCO worksheet in the 540D instructions is used on next year's 540D - not next year's 1040 schedule D? Yes, you would report that amount on next year's 540 D, since you are calculating the state carryover amounts.....not the federal amounts.

3) A lot of people have been telling me to just enter the Fed cap loss carryover for 2012 into the value for the 2012 state 540D form and be done with it. I don't think this is right. I think I need to work thorough the CLCO worksheets from 2007 till present and enter that figure for 2012, and then re-file back to 2008 with the right figures.

Correct. You should use the carryover worksheet to properly calculate the carryover amounts to report each year.

4) Finally, this should only affect my state tax forms and not my federal forms.
Am I right?
The federal Schedule A can be impacted when state tax liabilities change. For a more complete answer, you may want to submit this question to Gregory Burke, a Sacramento CPA, who answers IRS questions for Sacbee.com's "Ask the Experts"

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at cbuck@sacbee.com

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.



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