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Let's use this example for US taxes: let's say someone losses $50,000 in the stock market one year, then makes $50,000 the next year. Do they pay $0 in taxes for the latter year?

I see that you can deduct $3,000 per year from losses with a schedule D. But, I heard somewhere that you don't pay taxes on any stock profits until you break even on losses from previous years. Is this true?

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Assuming that you had no gains in year ONE when you realized $50k in losses, you would deduct $3k on your taxes and have a carry forward loss of $47k.

In year TWO you realized $50k in capital gains. The $47k would be neutralized and you would pay taxes on $3k in year TWO.

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    But only if you do your paperwork correctly. One can throw the advantage away by being stupid. Apr 13, 2020 at 15:11
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    @Harper-ReinstateMonica That qualification applies to all tax calculations.
    – Barmar
    Apr 13, 2020 at 15:32
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    My real point is that it should go without saying.
    – Barmar
    Apr 13, 2020 at 16:22
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    Just in case a reader misses it, the very important keyword here is realized: just because your portfolio value goes down (or up) does not mean you deduct (or pay) taxes. You have to actually sell your holdings in each year to realize the loss/gain.
    – josh3736
    Apr 13, 2020 at 21:31
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    Not applicable here but traders who apply for and are granted Trader Tax Status by the IRS use MTM accounting and can deduct the entire loss in the year it is realized Apr 13, 2020 at 22:32

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