Loss Carryforward

When your net capital losses exceed your capital gains plus the $3,000 annual deduction limit, the excess carries forward to future tax years. There is no time limit — losses can be carried forward indefinitely until fully used.

How it works

You lost $20,000 trading prediction markets in 2024 and had no capital gains:

• 2024: Deduct $3,000 against ordinary income. Carry forward $17,000.
• 2025: Deduct $3,000 more. Carry forward $14,000.
• 2026: You earn $10,000 in prediction market gains. Apply $10,000 of carryforward losses, leaving $4,000. Deduct $3,000 more. Carry forward $1,000.
• 2027: Deduct remaining $1,000. Carryforward exhausted.

Tracking carryforward

Loss carryforward is reported on Schedule D, line 6 (short-term) or line 14 (long-term), using amounts from your prior year return. The IRS expects consistency — if you claimed capital gains treatment one year, switching to gambling income the next could create issues with carryforward.

Why this matters

If you had a bad year trading prediction markets, those losses aren't wasted. They reduce your taxes for years to come. This is one of the strongest advantages of the capital gains method over gambling income (which has no carryforward).