@steiny1227 said "But my ST gains would already be offset with my ability to write off the investment interest expense"
No. That's not how it works. You are able to deduct your investment interest, as an itemized deduction, up to the amount of your net investment income. That deduction is NOT applied directly to any other type of income. It is just a general deduction (with a cap).
Your original understanding is correct, LT losses first offset LT gains, then any excess can be used to offset ST gains. You may then deduct any excess (but not more than $3000) against ordinary income.
Q. So, which offsets the tax impact of the ST gain - is it the LT cap loss or the investment interest?
A. LT capital losses
Q. Then any excess investment interest, that can't be written off because it exceeds my net investment income, I could carry forward to future years to offset future investment income?
A. Correct
So, which offsets the tax impact of the ST gain - is it the LT cap loss or the investment expense? Clearly I would want the LT loss to offset the ST gain, then any excess investment expense that can't be written off because it exceeds my net investment income I could carry forward to future years to offset marginal income. This maximizes my tax reductions in the future.
