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Does Massachusetts treat term gains and carry over losses…

Jim,Does Massachusetts treat long term...
Jim,Does Massachusetts treat long term gains and carry over losses differently from the Feds?I have had unused long and short term capital losses that have carried over for years on the Federal form (D). I use H&R Blocks Taxcut (old name) software for a decade+.The time came to use it with a longterm gain. On the Fedearl return, I see the longterm carryover loss offset the longerm capital gain. However, I don't see this happen on Mass Schedule D, which shows no carryover loss, and therefore nothing to offset against!I want to be sure this is correct.Thanks!
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1/19/2018
James Daloisio
James Daloisio, Tax Attorney
Category: Tax
Satisfied Customers: 462
Experience: 24 years of continuing education and experience.
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Hello again,

Thank you for requesting me. Mass. has its own rules regarding capital losses. They do not follow federal law. I don't know what kind of gains you're offsetting nor what kind of losses you're using to offset them, but just to be sure you've covered all your bases, check to see if your tax program has created a Mass. Schedule B for interest and dividends. If it's required, certain losses can be used to offset interest and dividends, and the program should default to the Schedule B deduction first, before entering any losses on Schedule D.

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Customer reply replied 4 months ago
No problem, Jim! I really like your super thorough answers, so you only have yourself to blame for it :):)Just checked. Yes, there is a Mass Sched B, and it has only the interest and dividends I got, nothing else.Sooo, to clarify, my long term capital gains are from sale of stock. I do have long and short term carryover losses from a decade +, that has never been used, other than being bled at 3000/year absent any gains to offset against in the intervening years.
Customer reply replied 4 months ago
Where should I go with this?

I'd go back six years. Break down your long term and short term losses that had to be carried forward on your federal returns for each of those years. Then call your software provider and ask if you should be seeing any loss carryforward on any of your state returns for those years. I don't believe there's been any significant changes in the law since 2002. And your Mass. form Schedule D clearly has a provision for a carryforward loss. In these cases I find the software providers provide the quickest and most reliable answers. Of course I always double check with the DOR.....

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Customer reply replied 4 months ago
OK. Thanks. I will keep you posted of my findings..
Customer reply replied 4 months ago
Ohhh. I should mention the bulk of the short term and long term losses happened over a decade ago, in one shot, and has been carried forward every year. I have added one stock that went under, since then...

That shouldn't be a problem. The reason I suggested you contact your software provider is that Massachussets law in this regard is quite complicated. They have three different "classes" of income: Class A, B, and C. Each has its own rules for determining adjust gross income, and they've been tinkered with over the years. I don't believe there've any major changes in the past 10 years but you want to check the status of those carry forwards at the state level.

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Customer reply replied 4 months ago
What puzzles me is that the carry forward happened on the Fed Sched D, but not on the Mass Sched D, where there is no trace of it!! I have been using the same SW for a decade+, so that is making me wonder if the SW figured this out correctly, or the developer goofed up.Assuming I can mirror the Mass Sched D with the Fed Sched D, will the return be flagged for a carryover loss suddenly showing up? I do have the trail with the Fed Sched Ds, however. Tnx

Like I said, the rules are complex. You really need to connect with the SP. Mass. allows you to carry forward capital losses. But losses are always calculated with the initial losses being applied to interest and dividends on Schedule B. You would have to go back over your old tax returns to figure out what happened to your former losses before you take them on your latest return because DOR is going to wonder why you didn't report them as carryforwards when they occurred. It's entirely possible, if you reported interest and dividend income, that capital losses were applied to those gains on Schedule B, and didn't carry over to Schedule D.

James Daloisio
James Daloisio, Tax Attorney
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Experience: 24 years of continuing education and experience.
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Customer reply replied 4 months ago
I spoke to DOR, and they confirmed that, broadly speaking, they treat carryover losses the same way as the feds. They asked me to enter the short/long term carryover loss figures, and include Fed Schedule D, in case they want to look at it.
After a few phone calls, the SP (HRBLock) was able to tell me that while the carryover happens automatically each year with the Fed return software, the State version doesn't import this from the Fed return. There is a check box in the state interview to use to make it ask you for the carry over loss figures for the state. I had missed this having implicit faith in the sw to import/carry over from the federal data. The disparity in the federal vs state treatment of the longterm gains by the sw was the flag that made me dig deeper and catch the error.Thanks for your help!
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