So say I trade XYZ stock every month, but suffer a loss in one month. Does that loss ever get deducted? Even if I stop trading it in October?
Yes. All of your CLOSED positions are "deducted" no matter what. The problem comes in where you have a loss in XYZ on a buy/sell and then open another buy position in XYZ. What happens then is your loss is not recognized but that loss is added to the basis of your XYZ position.
I mean as in this is the amount I actually made, which as it stands now is 12K.
What I mean is paper losses are realized while actual losses are recognized for tax purposes unless you elect MTM or there is some law or reg that says otherwise.....like the wash sale rule. In a wash sale you realize a loss but you do NOT recognize the loss for tax purposes until you close the position.
As the IRS would be taxing me on literally no gains, if the losses never take effect.
The losses take effect.....are recognized.....IF you close your loss positions OR if you elect MTM.
