A worked example
The exit that went the other way
Priya, 39, single. Six years of buying and exercising put $1.2M of her own money into her company's stock. It sold last month, the preference stack took the proceeds, and common cleared $250k. She is back on someone else's payroll at $210k.
“I put $1,200,000 into that stock and $250,000 came back. What is a loss like that actually worth, should I convert to Roth against it, or sell the shares I still hold in the company before this one?”
What the projection shows
What the tax code (§1211) actually does with a capital loss this size. Only $3,000 a year can be used against ordinary income, so most of it is still sitting there unused at the end of thirty years. The comparison shows the difference between using the loss against a Roth conversion (it can't, since a conversion is ordinary income) and using it against a capital gain. That includes selling part of the brokerage account and buying it straight back, which changes nothing about what she owns but changes a lot about what the loss is worth.
What else the projection found
Nothing was missing from the inputs. These follow directly from the numbers above, under the assumptions this example uses.
- The plan ends with $863,000 of capital losses still unused, while $2,457,333 of untaxed gain sits in the same brokerage account. Without a sale, the loss only offsets $3,000 of ordinary income a year.
- The plan ends with $863,000 of capital losses still unused, while $2,359,167 of untaxed gain sits in the same brokerage account. Without a sale, the loss only offsets $3,000 of ordinary income a year.
- The plan ends with $110,079 of capital losses still unused, while $1,704,412 of untaxed gain sits in the same brokerage account. Without a sale, the loss only offsets $3,000 of ordinary income a year.
- The plan ends with $113,000 of capital losses still unused, while $3,902,691 of untaxed gain sits in the same brokerage account. Without a sale, the loss only offsets $3,000 of ordinary income a year.
The planner opens with this household already filled in. Change the balances, the ages or the assumptions to match your own situation, then run it.
A projection based on stated assumptions. Not financial or tax advice.