I used to think that there was nothing wrong with realizing capital losses in a year where you couldn’t use them because they can be carried forward indefinitely. However, I discovered a scenario where I wish I had held on to some loser stocks.
Suppose that in 2009 your spouse sold some stock and realized a $5000 taxable capital loss. Then in 2010 your spouse sold more stock and realized a $5000 taxable capital gain. Suppose further that your spouse’s other 2010 income is very low. You might think that you will get full value for the spousal deduction. However, this isn’t the case.
The spousal deduction is based on net income rather than taxable income. The carried forward capital loss does not affect net income. Rather it gets subtracted from net income to calculate taxable income. So, the $5000 of capital gain income reduces your spousal deduction.
If both blocks of stock had been sold in 2010, the capital gain and loss would offset each other and you’d have received the full spousal deduction. So, this is one scenario where it makes sense to hang on to a loser stock until you can actually make use of the capital loss.