Capital Loss caryover.. how does the IRS keep track of this?

Question

I had a pretty large capital loss several years ago. Since then I've been doing the 3000 deduction each year from my gross income during tax writeoffs.

Will the IRS ever request to show proof of my deduction even though it's a carry over from years and years ago? Will they ask to see proof from my original loss back then?

How far back can they go? Say its my 10th aniversay since my capital loss and I'm still writing off 3000 this year. Can they ask for original documents to prove it? Isn't there a statue of limitations?

Answer 1

whether it's a loss or a gain is pretty much on the honor system with the IRS, but since they have your tax returns from the first one that you filed showing the original loss and subsequent returns showing the $3,000 writeoff per year, I wouldn't worry about it.

Answer 2

They can go back to the initial loss and ask for proof. Although the statute would normally exclude anything more than 3 tax years back, the carryforward is an exception since it impacts more recent tax years.

This is the type of thing that you need to keep records on for as long as the item exists. A large loss may need to be carried forward for decades so that's now long you'll need to maintain proof for.

Answer 3

They probably won't question it at this point. But keep all your tax returns for those years all the way back to the original loss that you are carrying over, in case it's ever questioned. Also hang onto the documents backing up the loss.

Answer 4

Yes they likely will ask you for proof. If it is a capital loss from sale of stock, your proof is the statements showing the purchases, and the 1099-B you got in the mail the year after you sold the shares.

Answer 5

IRS has records. Don't worry, they can go back years and years and years. No only they store paper returns for a short time, they also digitize the returns too.