In cases where taxable income would be negative without factoring realized losses, the IRS allows you to take the entire loss forward to future years.
Many advisors are aware that realized capital losses can first be used to offset gains. If there are still losses remaining, taxpayers can use them to offset up to $3,000 of other income, with any remaining losses carried forward to future years.
But in cases where taxable income would be negative without factoring in the losses, the IRS allows you take the full amount of the loss forward to future years. Here's an example:
Note that the taxpayer has total income of $1,917, which presumable would have factored in the $3,000 of the $8,689 loss (combined loss across short- and long-term capital gains). After the standard deduction of $14,700, the taxpayer effectively has negative taxable income. Since that's not possible, taxable income is $0, as is the ensuing tax bill.
But had the taxpayer not taken the loss, total income and AGI would have been $4,917. With the same standard deduction, taxable income would still be negative, and the tax bill would still be $0. The loss didn't help the taxpayer.
In this case, the IRS does not "make" the taxpayer take the $3,000 loss, which is why the carryforward loss to future years is the full amount. Worksheet 4-1 of Publication 550 (page 66 for 2022) contains the steps to determine the loss carryforward, and is the worksheet Holistiplan uses in its internal audit to arrive at the amount of loss carryforward:
