Can long term capital losses offset dividend income, or regular wage income, in a tax year? Or can long term losses only offset short term capital gains?

[paul-j-heckman]

I believe long term losses offset short term gains, but I have excess long term losses.  I can't tell if they can be used to offset dividend income, or also unemployment insurance income...?   As much detail as possible is appreciated!   🙂

[MayaD]

Yes,  but only $3,000 ($1,500 if married filing separately) of capital loss can be deducted against earned or other types of income in the year. 

Your total net loss shown on line 16 of Schedule D (Form 1040). Claim the loss on line 7 of your Form 1040 or Form 1040-SR.

 If you have any leftover losses, you can carry the amount forward and claim it on a future tax return.

[paul-j-heckman]

thanks!

but long term capital losses can fully offset short term capital gains, right?  As in there's no restriction?

Say i had 50K in short term gains and 50K in long term losses, my total stock gain/taxable loss is zero, correct?

[Cynthiad66]

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.

Use this link for addition information:  Capital Gains and Losses

[LCircuit]

@Cynthiad66 Referring to specific question from Paul, capital losses offsetting capital gains, What are the specific limits that you mentioned? there was reference to capital losses offsetting "income" and having limit, however that's income/salaray (not capital gains).

Going back to original query, are there any restrictions/limits of capital losses offsetting just capital gains?

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@Cynthiad66 wrote:

Yes, but there are limits.

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 paul-j-heckman

thanks!

but long term capital losses can fully offset short term capital gains, right?  As in there's no restriction?

Say i had 50K in short term gains and 50K in long term losses, my total stock gain/taxable loss is zero, correct?

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[Mike9241]

Say i had 50K in short term gains and 50K in long term losses, my total stock gain/taxable loss is zero, correct?

yes.

if net capital losses exceed $3,000 ($1500 if married filing separately) only $3,000/$1500 can be used to offset other income such as salaries, interest, etc. the excess carries over to the next year. 

[daherbie]

To take this $1500/$3000 deduction do i need to itemize deductions or is this done even w/ the standard deduction? (In other words, can I take this income offset of losses without itemizing deductions?). Thanks!

[Critter-3]

The capital loss deduction has nothing to do with using the standard or itemized deductions ... they are on totally separate lines and sections of the form 1040.

So the loss can be claimed in the income section no matter which deduction you take later. 

[SupplyCider]

Capital losses, short-term or long-term, can only be deducted from capital gains.  The net gain (after deducting losses) is subject to a lower tax rate on long-term gains if the asset was held at least 12 months before being sold. 

Net short-term gains are taxed at ordinary income tax rates, which depend on your income tax bracket (higher taxable incomes face higher marginal rates on added income).

If capital losses exceed realized gains (on assets sold that year), the excess unused capital loss can be carried forward indefinitely and used in future years to offset future gains.