I don't think that is correct. I have never heard of that and if you can point me to a link that explains it I stand corrected. When you have a carryover it works the same way. You first calculate your gains/losses. Then you apply your carryover losses to the bottom line. Here is an example of how to apply a carryover - it does not say anywhere that you first apply 3k to ordinary income and then you figure what your gains/losses are:
An Example of Carrying Over Losses
Suppose the stock market has a bad year. You sell a stock or mutual fund and realize a $20,000 loss with no capital gains that year. First, you'll use $3,000 of the loss to offset your ordinary income. The remaining $17,000 will carry over to the following year.
Next year, if you have $5,000 of capital gains, you can use $5,000 of your remaining $17,000 loss carryover to offset it. You can use another $3,000 to deduct against ordinary income, which would leave you with $9,000.
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