Suppose I have $10,000 in short-term capital losses and $20,000 in long-term capital gains in tax year 2020. What are my options?
I understand that I can use the short-term losses to offset the long-term capital gains, but this wouldn't be very effective since long-term capital gains are only taxed at 15% (as opposed to being taxed at the regular income rate). Are there other options that would allow me to apply the short-term losses to reduce ordinary income? For example, can I carry the short-term losses forward for use in future years? This would allow me to offset short-term capital gains or ordinary income in future years, which are taxed at the regular income rate.
Yes, there is such an option. You can offset your ordinary income with your net capital losses up to $3,000 in a given year; net losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted.
No. Gains and losses are netted against each other in the year they are generated.
Can I offset ordinary income with $10,000 of short-term capital losses if I have $20,000 in long-term capital gains that year? Or am I only allowed to offset ordinary income with NET capital losses. If the latter, it seems like I wouldn't be able to offset ordinary income in the situation described above, since I don't have net capital losses (I have a $10,000 net capital gain).