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.
The short term capital losses only offset other capital gains, so if there are no capital gains, the taxable income is still $50k.
The short term capital losses reduce taxable income to $48k.
Something entirely different.