Your $15,000 stock loss does offset your $10,000 stock gain, leaving you with a net capital loss of $5,000 for the year.
The IRS allows you to deduct up to $3,000 of capital losses per year against other types of income, like your salary or the $1,000 in interest from your savings account.
The leftover $2,000 of your loss (since your total loss is $5,000 and you’re using $3,000 this year), will carry over to future tax years. This means it can help offset gains or income next year.
The $3,000 deduction reduces your overall taxable income, which will ultimately lower your tax.
- For example: If you have a salary of $35,000, plus $1,000 of interest income from your savings account, plus a -$3,000 in losses, your taxable income would be $33,000, so tax would be calculated on $33,000 as opposed to $36,000.
This deduction comes into play before any tax brackets are applied, so it’s a straightforward way to lower your taxes.
You will then carry the remaining $2,000 in losses forward to the next tax year to reduce taxes on future gains or income.
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Terri Lynn
