Can I use Capital Loss Carryover to reduce current year ST Capital Gains?

[Ep0509]

My Situation:

50K Capital loss carryover from last year 

20K ST Capital gains current year

Can I use the carryover against the ST CGs?  Or just LT CGs?    The carryover loss is from a LT investment 

[ColeenD3]

Yes, but there are limits.

Can I deduct my capital losses?

Yes, but there are limits. Losses on your investments are first used to offset capital gains of the same type. So, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain.

For example,

• If you have $2,000 of short-term loss and only $1,000 of short-term gain, the net $1,000 short-term loss can be deducted against your net long-term gain (assuming you have one).
• If you have an overall net capital loss for the year, you can deduct up to $3,000 of that loss against other kinds of income, including your salary and interest income.
• Any excess net capital loss can be carried over to subsequent years to be deducted against capital gains and against up to $3,000 of other kinds of income.
• If you use married filing separate filing status, however, the annual net capital loss deduction limit is only $1,500.

ST gains

[Ep0509]

Thanks for your response.  Could you look at this example?

2020: 10K Capital loss carryover 

2021: 8K net ST Capital gain + 8K net LT Capital gain 

Can the 10K carryover be used against the ST Capital gain first to avoid paying taxes on it at my ordinary income rate? Or must I use against the LT Capital gain first?  

[PattiF]

No, the loss must be applied to the Long Term Capital gain first.

From the TaxBook: "When a taxpayer carries over a loss, the loss remains long term or short term. A long-term loss carried over to the next tax year will reduce that year's long-term capital gains before it reduces that year's short-term capital gains."