- Steven Buker
- Updated April 21, 2026
Capital Loss Carryovers - Are They Cash Flow?
The Scenario
An analyst who called the Bukers Hotline has a borrower with a Schedule D that shows:
- A short-term capital loss carryover of ($121,000) on line 6
- A long-term capital loss carryover of ($374,000) on line 14
However, only ($3,000) of those total losses carries to Form 1040 line 7a due to the capital loss limitation rules. The sum of the capital loss carryovers totaled ($495,000) which nearly doubled her borrower’s $250,000 salary.
The analyst thought her borrower had horrendous cash flow issues and that she shouldn’t do business with this borrower since the losses offset salary resulting in a “net” negative of ($245,000).
The Question
Which of these values should be included in the calculation of the borrower’s cash flow?
The Analysis
The total capital loss carryover of ($495,000) represents capital losses that were incurred in prior years by the borrower. Tax law limits the amount of capital losses that an individual can actually deduct on their tax return.
First, capital losses will offset capital gains. If capital losses exceed capital gains, up to $3,000 of the loss can be carried to page 1 of the Form 1040 to offset ordinary income. The excess capital losses can then be carried over to subsequent years, for an unlimited time, until the total loss is exhausted.
The Conclusion
The capital loss carryovers reported on lines 6 & 14 of the Schedule D represent the amount of capital losses that have not yet been deducted on the individual’s tax return. For this reason, capital loss carryovers are not a cash event and should not be included in the calculation of total cash flow.
Key Takeaway for Lenders
Capital loss carryovers are merely “paper” loss carryovers and should be ignored in a cash flow analysis.
Looking For More?
For a more in-depth analysis of how capital losses affect your spread of a borrower’s tax return, check out our Bukers Taxanalysis Online course. As always, users of the Bukers Taxanalysis and BTA Pro software can call into the Bukers Hotline with any tax return related questions just like the question above.
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