The loss is taken directly off your income; but not exactly.
The loss is a capital loss reported on form 8949. It then carries to schedule D where it is used to reduce any capital gains that you have. If you still have a loss, it goes on line 13 of form 1040 where it is deducted from other income before tax is calculated.
But there is a $3000 per year limit on capital losses being deducted from total income. If your loss is more than $3000, only $3000 will be deducted on your 2016 return. The rest will carry over to next year.
And convolutions like that are why you need expensive software, or tax people, to prepare your taxes.
