TurboTax will calculate the amount of capital loss that can be used against ordinary income (up to $3,000 per year).
First you will use the capital loss to offset capital gains. Then you will be allowed to offset capital losses against ordinary income up to $3,000 per year. The remaining unused capital losses will be carried over to future years until it is all used.
A net capital loss goes on line 13 of form 1040 where it is deducted against all other income. A capital loss is first deducted from any capital gains, including capital gains distributions, on schedule D before going to line 13 of form 1040. At no point are capital losses deducted directly from dividend income