Can short term capital loss carryovers be lost by ill-timed long term gains?

Question

Person A has a short-term (ST) loss in 2003 of $10,000. They reduce income by $3000 and carry over $7000 in ST losses. In 2004 they have a ST gain of $10000. With the C/O they report +$3000. In 2005 they have a LT loss of $10000 and then in 2006 a LT gain of $10000. Same carryover calculations. Net effect on income over 4 years 0. Person B starts with the same ST loss in 03 but has a LT gain in 04, then the ST gain of $10000 in 05 and the LT loss in 06. Net effect on income since the gain in 04 in LT is not offset by the ST loss carryover but the carryover is eliminated by that years net gain: +$14000 and they only have $7000 in LT carryover left! Have I gotten something wrong?

Answer 1

Yes you are doing something wrong. ST vs LT is not an issue. In both cases, the 1st 2 years net 0. In the 1st case, the 2nd 2 net 0 as well. In the 2nd case, 2005 is +10000, 2006 is -3000, but you have the -7000 carryover, net 0.

Answer 2

Yes, for person b your calculation isn't correct.

On schedule D you total short and long term net gains/losses each year, and the carryover is already in the short or long term total by that time.