What Carries Over: The Losses, Credits and Deductions This Year’s Return Hands to the Next One

A tax return is not a clean slate every January. Some of what happens in one year is too big to use in that year — a stock loss, a business that lost money, a rental that ran at a loss, a gift to charity larger than the law allows in one bite — and the Code lets the unused part ride into the next return. Some of it rides for five years, some for ten, and some for as long as you live.

These are carryovers. They are the most commonly lost deductions in tax practice, and they are lost in one way: somebody changed preparers, or changed software, or did the return themselves one year, and the number that should have moved from last year’s return to this year’s never made the trip. The IRS does not track your carryovers for you. Nothing on a transcript says “you still have $14,000 of capital loss.” If it isn’t on this year’s return, it’s gone for this year, and if nobody notices for three years, it’s gone for good.

This page lists what carries, how long, where it lives on the return, and — just as important — what doesn’t carry at all.

The big three for households

The IRS calls them: net capital loss carryover, net operating loss, suspended passive activity loss

Capital loss carryover

Sell investments at a loss and the losses first offset your gains. If losses still exceed gains, you can deduct $3,000 of the excess against ordinary income ($1,500 if married filing separately). Everything beyond that carries forward, keeps its short-term or long-term character, and comes off next year’s gains first, then another $3,000 against ordinary income, and so on until it’s used up. There is no time limit — but it stops at death. A loss carryover doesn’t pass to heirs, and on a joint return each spouse’s share dies with that spouse.

Where it lives: Schedule D, lines 6 and 14, from the Capital Loss Carryover Worksheet in the Schedule D instructions. What to look for on last year’s return: Schedule D line 16 negative by more than $3,000, or a $3,000 deduction on line 21 with a bigger loss above it. The full story of gains and losses is in Capital gains and losses and Reading your brokerage 1099.

Net operating loss

If your business losses, after the limits in the next section, are large enough to wipe out all your other income and leave taxable income below zero, the negative amount is a net operating loss. Since 2018 an individual’s NOL carries forward indefinitely, cannot be carried back (farming losses excepted), and can offset no more than 80% of taxable income in any later year. The computation is not just “my business lost money” — personal deductions and capital losses are adjusted out, and the figure usually comes out smaller than the loss on the business schedule.

Where it lives: Form 172 (new since the 2024 return) computes it; the carryover is claimed as a negative number on Schedule 1, line 8a, with a statement showing the year it came from. What to look for: a year with a large Schedule C, E or F loss and a Form 1040 line 15 of zero.

Suspended rental and passive losses

Losses from rental property, and from businesses you own but don’t work in, can only offset passive income. The exception most people rely on — up to $25,000 of rental loss against wages if you actively manage the property — phases out between $100,000 and $150,000 of modified AGI and is gone above that. Whatever can’t be used is suspended, carried forward indefinitely, and released in one of two ways: passive income in a later year, or selling the property, at which point every suspended loss on that property comes out at once.

Where it lives: Form 8582, Part VII and its worksheets; each property carries its own suspended amount. What to look for: a rental on Schedule E showing a loss that never reached the front of the return, or a Form 8582 anywhere in the prior year’s file. How the loss arises and the $25,000 allowance are covered in Your home as income and the high-earner phase-outs; this page picks up where those leave off — the disallowed amount on Form 8582, and what releases it.

Business and rental carryovers

The IRS calls them: §461(l), §1366(d), §465, §179(b)(3), §280A(c)(5), §199A(c)(2)

A business loss has to pass through a series of gates before it reaches the front of your return, and what stops at each gate is carried forward under that gate’s own rules.

Carryover	What it is	How long	Where it’s tracked
Excess business loss	Total business losses over $256,000 single / $512,000 joint for 2026 (verify) can’t offset wages and investment income this year. Permanent under the 2025 act.	Becomes a net operating loss the next year; indefinite from there	Form 461 → Form 172
S corporation or partnership loss over basis	A loss on your K-1 is deductible only up to what you have invested and lent, less what you’ve taken out.	Indefinite; released as basis is restored	Form 7203 (S corporation); partner’s basis worksheet
At-risk loss	Losses beyond the amount you could actually lose.	Indefinite; released as the amount at risk increases	Form 6198
Section 179 expensing	Equipment written off in full, but limited to business income for the year.	Indefinite	Form 4562, line 13 → next year’s line 10
Home office deduction	Limited to the net income of the business.	Indefinite, same home office only; no carryover under the simplified $5-a-square-foot method	Form 8829, lines 43–44
Negative QBI	A net loss across your businesses for the 20% deduction.	Indefinite; reduces next year’s QBI before the deduction is figured	Form 8995, line 3
§1231 loss lookback	Not a carryover of the loss itself — but a net loss on business property turns the next five years’ §1231 gains into ordinary income until it’s recaptured.	Five years	Form 4797, Part I

Two of these catch people regularly. The basis rule means a loss on your S corporation K-1 may be deductible nowhere this year if you’ve already taken out more than you put in; Form 7203 has to be in the file every year, or the suspended loss can’t be proven later. The excess business loss rule means a very large loss from one bad year — a contractor who wrote off equipment and had a slow season — doesn’t offset a spouse’s wages beyond the limit; the rest becomes an NOL and waits. See the QBI deduction and the home office deduction for the two most common of the smaller ones.

Deduction carryovers

The IRS calls them: §170(d) charitable contribution carryover, §163(d) investment interest carryover

Charitable contributions. Cash gifts to public charities are limited to 60% of AGI; appreciated property to 30%; gifts to private foundations lower still. Anything over the limit carries forward five years, then expires. New for 2026: itemized charitable deductions are reduced by 0.5% of AGI before they count (verify the carryover interaction), and people who don’t itemize may deduct up to $1,000 ($2,000 joint) in cash gifts — that one has no carryover. Where it lives: the carryover worksheet in Publication 526; the carried amount is added on Schedule A, line 12. What to look for: a large gift year, especially a gift of stock or real estate. More in Charitable giving.

Investment interest expense. Margin interest, and interest on money borrowed to buy taxable investments, is deductible only up to your net investment income. The rest carries forward indefinitely. Where it lives: Form 4952, line 7. Most people with a margin account have one of these and don’t know it.

Mortgage interest, state and local taxes, medical expenses — see “What doesn’t carry.” They don’t.

Credit carryovers

The IRS calls them: §53 minimum tax credit, §904(c), §23(c), §39, and an overpayment applied to estimated tax

Credit	How long	Where it’s tracked
Alternative minimum tax credit — prior-year AMT paid because of timing items such as incentive stock options	Indefinite	Form 8801
Foreign tax credit	Back one year, forward ten	Form 1116, Schedule B
Adoption credit, the nonrefundable part	Forward five years. The $5,000 refundable portion added by the 2025 act is paid out and does not carry (verify)	Form 8839
General business credits — small-employer health, pension start-up, work opportunity, research and the rest	Back one year, forward twenty	Form 3800
Residential clean energy credit (solar, batteries)	The credit ended for property placed in service after 2025, but a carryforward earned through 2025 is still usable (verify)	Form 5695
Last year’s overpayment applied to this year	One year — it is a payment, not a credit, and it is the most commonly forgotten item on this list	Form 1040, line 26

The AMT credit deserves a sentence. If you paid alternative minimum tax in some earlier year because of incentive stock options or depreciation differences, you may be owed a credit that reduces regular tax in later years. It sits on Form 8801, and it is routinely abandoned when a taxpayer changes preparers. See the high-earner phase-outs.

What doesn’t carry

The annual items — use them or lose them

Just as important, because it is the question people ask most:

• The standard deduction, and any part of it you didn’t “use.”
• Medical expenses below the 7.5% floor, or above it — each year stands alone.
• State and local taxes above the $40,400 cap for 2026 (verify).
• Mortgage interest on debt over the $750,000 limit.
• Gambling losses beyond gambling winnings — and from 2026, only 90% of losses count at all (verify).
• The 2026 deductions for tips, overtime, car-loan interest and the $6,000 senior deduction — annual, no carryover.
• Personal credits: child tax credit, dependent care, education credits, earned income credit, premium tax credit, saver’s credit. Each is figured fresh each year; the unused part is gone.
• Retirement contributions you didn’t make. There is no catching up on a missed year, apart from the catch-up amounts by age.
• Health savings account contribution room — annual.
• A capital loss or NOL at death. Neither passes to the estate or the heirs. (Suspended passive losses are the exception: they are released on the final return to the extent they exceed the step-up in basis.) See When a loved one dies.
• A wash-sale loss — not a carryover, but not lost either: the disallowed loss is added to the basis of the replacement shares and comes back when those are sold.

A worked example

Colorado

Colorado starts with federal taxable income, so every federal carryover that reduces federal taxable income reduces Colorado taxable income the same year, automatically — capital loss, NOL, passive loss, charitable. Colorado keeps no separate individual carryover schedules for these (verify). Three things to watch:

• Part-year and nonresident years. Colorado apportions income on Form 104PN. A carryover generated while you lived in another state still comes through federal taxable income; the Colorado share depends on that year’s apportionment (verify DOR guidance on NOLs earned before residency). See Moving to or from Colorado.
• Federal credits don’t exist for Colorado. The AMT credit, the foreign tax credit and the general business credit reduce federal tax only. Colorado’s own credits — child care, its earned income credit, the senior housing and income-qualified credits — are annual, with no carryover.
• The Colorado 529 subtraction is limited per year and has no carryover; contribute within the cap or lose the excess (verify 2026 cap).