According to the tax code, short- and long-term losses must be used first to offset gains of the same type. Let's define some things.
Short term capital gain or loss- bought and sold qualifying investment in less than a year's time.
Taxation of short term gain - It is subject to ordinary income tax, taxed at the same percentage as your regular income.
Included in box 1 on 1099-DIV. The Instructions for 1099-DIV states: Box 1a. Total Ordinary Dividends
Enter dividends, including dividends from money market funds, net short-term capital gains from mutual funds, and other distributions on stock. Include reinvested dividends and section 404(k) dividends paid directly from the corporation. Box 1a includes amounts entered in boxes 1b and 2e and it also includes the amount of the recipient's share of investment expenses that you report in box 6.
Long-term capital gain or loss -qualifying investment that has been owned for longer than 12 months at the time of sale
Taxation of long term capital gain - special charts with tax rates of 0% for many to a max of 20%.
The tax code allows joint filers to apply up to $3,000 a year in capital losses to reduce ordinary income, which is taxed at the same rate as short-term capital gains.
If you look at the sch D, you see the first section nets Short term gains and losses. The second section nets long term gains and losses. The last section will let you add and compare, you may qualify for up to $3,000 loss, using ordinary income tax tables.. Please see About Schedule D (Form 1040 or 1040-SR), Capital Gains and Losses
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