What is a Capital Loss Carryover?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 22 October 2019
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A capital loss carryover is a loss that is considered to be deductible, but cannot be deducted in the current tax year. Usually, this situation occurs when a corporation has already reached the maximum amount of allowances for deductions of that type for the covered period. Rather than simply abandoning the deduction on the loss, it is possible to claim the deduction for the following period, resulting in a carryover from one period to a later period.

Companies do experience a capital loss carryover of some sort from time to time. In general, there will be at least a few laws that control the amount of capital loss that any one company can claim during the tax period. Once that amount has been reached, it is impossible for the company to declare any further capital loss and use it to reduce the amount of net profit experienced by the company. This situation helps to eliminate the possibility of excessive loss claims that result in totally wiping out any tax obligation on the part of a corporation that is actually operating at a profit.


However, the principle of capital loss carryover helps to ensure that the corporation can legally claim all capital losses over time. Once the new tax period is underway, the corporation can apply the loss that was not deductible in the previous tax year to the current period. This arrangement of allowing the loss carryover of a capital loss worth the time and effort it takes to accurately document a capital loss, even relatively small losses.

Most nations impose a cumulative value of capital loss that can be claimed from one tax year to the next. The exact amount of capital loss carryover will vary from one country to another, with the country where the company is incorporated being the nation of jurisdiction. Declaring a capital loss carryover requires maintaining documentation that justifies the amount of the loss according to current government regulations, as well as the ability to demonstrate that the loss was not declared in a previous year.


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