Major losses this year

[jj18724]

I sold a lot of loser stocks this year and have over 500K in losses.  414K are short term.  I have long term gains in stocks that I could sell matching those gains with the losses, that way avoiding any tax.  Would that work?

[Mike9241]

you can only deduct $3,000 in net capital losses in any one year.  assuming the $500K is your net capital loss to date for 2022 taking an additional $500K in gains in 2022 you'll end up with no capital loss deduction and no carryover.

taking no further gains or losses in 2022 and taking $500K in long-term gains in 2023 you'll get a $3K capital loss (most likely short-term which is treated like ordinary income) deduction in 2022 with a $497K capital loss carryover. In 2023 you would have a $3K capital gain (most likely - long-term which may be federal tax-free). 

so there could be a slight advantage to taking the long-term gains in 2023 vs 2022 but this would depend on your income and what you do with your stocks in 2023.

another option is not to take the long-term gains. just continue to use up the short-term losses. note that any unused losses disappear upon your demise. 

[jj18724]

Thanks for your quick answer Mike.  So I think what you're saying is I can't use the big losses this year, except for $3000, to offset any gains I might have if I sold my long term holdings.  JJ

[rjs]

@jj18724 

You misunderstood what Mike9241 said. You can use the short-term losses to offset long-term gains this year. When he said "you can only deduct $3,000 in net capital losses" he was talking about deducting capital losses against ordinary income, such as wages. And he was talking about net capital losses. That means the amount that's left after using the capital losses to offset capital gains.

For example, if you have $500,000 of capital losses (short-term or long-term), and $490,000 of long-term capital gains, then you have $10,000 net capital loss. You can use $3,000 of that $10,000 to offset other income, and the remaining $7,000 would carry over to 2023.

[Hal_Al]

Q.   I have long term gains in stocks that I could sell matching those gains with the losses, that way avoiding any tax.  Would that work?

A. Yes.

You are allowed to offset long term (LT) gains with short term (ST) losses.  You must first apply short term losses to any short term gains, you have.  But, any additional ST losses can be used against LT gains.  If you have no ST gains, then all the ST losses can go against LT gains.  If you still have "left over" losses, only $3000 can be deducted this year. The rest carries over to next year. 

[jj18724]

Thanks for the clarification RJS.  Now I understand.