You can use capital losses to reduce your taxable investment profits, but if you have a net capital loss for the year you can use only up to $3,000 ($1,500 if you are married filing a separate return) of your loss as a deduction against other taxable income, such as wages or interest, on your return. Your 2006 capital loss is calculated on Schedule D and we enter it on Form 1040, line 13.
If you have more than $3,000 ($1,500 if you are married filing a separate return) in capital losses in 2006, we calculate your 2006 capital loss carryover to 2007 in the Capital Loss Carryover Worksheet, located on Schedule D.
If your capital losses were limited in 2005, you may be able to deduct your 2005 capital loss carryover on your 2006 return. Enter the amounts from your 2005 Capital Loss Carryover Worksheet of the Last Year's Data Worksheet. We'll deduct the amounts automatically on your 2006 Schedule D.