Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. Join them; it only takes a minute:

Sign up
Here's how it works:
  1. Anybody can ask a question
  2. Anybody can answer
  3. The best answers are voted up and rise to the top

How do short term capital losses figure into taxable income? If someone has 50k of taxable income before considering capital gains (and losses) and a total of $2k in short-term capital losses, what is the tax consequence? I understand I'm asking for a simplified answer, but I want to understand the basic principle.

  1. The short term capital losses only offset other capital gains, so if there are no capital gains, the taxable income is still $50k.

  2. The short term capital losses reduce taxable income to $48k.

  3. Something entirely different.

share|improve this question
up vote 7 down vote accepted

Capital losses offset capital gains. If you have long term capital gains - your short term losses will offset them. After that - total capital losses (if your gains are less than your losses) offset your general income up to a certain level ($3000 for a single person). If you still have losses remaining that are above that level - you carry them over to the next year and repeat the offsetting and carrying over until you've offset all the losses.

IRS Publication 550.

So in your example, assuming you only have $2K capital losses and no gains - it would be the choice number 2: you offset your income and pay taxes on $48K.

share|improve this answer
+1 for a very nice answer. – Dilip Sarwate Mar 24 '12 at 20:42
+1 $3K/yr loss limit for MFJ as well. – JoeTaxpayer Mar 25 '12 at 2:34

Your Answer


By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.