Replies to post #61054 on Zeev's Turnips Patch-No Politics (ZEEV)

[sylvester80]

<Can I deduct more then 3000 dollars of realized short term losses against let's say 20000 dollars in long term realized gains during the same tax year? IOW if I have 10000 in ST losses and 20000 in LT gains, will my liability be 10000 or 17000?>

AFAIK, the answer is yes. You can deduct more than $3000 of ST losses from $20,000 LT gains. In your example, your liability will be $10,000. The $3,000 only comes into play if you have net losses more than $3,000. If your net losses (losses - any gains) are more than $3,000, then you can only deduct $3000 and carry over any left over amount to future years.

[MONYMAN3]

Babylon- typically you net short term gains against short term losses; then you do the same with long term gains and losses.
After the you accomplish the above process, you would offset your 10k in net short term gains against the 20k in net long term losses and with the resulting 10k overage in long term losses you can offset ordinary income of $3000 on a $2/$1 basis ($3000 deduction costs you $6000 in longterm losses, leaving you with a carry forward of $4000 in longterm losses ). Say you had an overage of 10k short term losses after netting with long term gains, you would offset ordinary income on a $1/$1 basis...leaving you with a short term loss carry forward of $7000.

I used to know this stuff cold, but it's late and I invite any or all corrections. Hope it helps. Rob

[MONYMAN3]

Babylon--- CORRECTION on Capital Loss Dededuction-
After I wrote my reply to you, I double checked the tax rules and here's what I came up with:

The netting and taxing rules are:
(1) Combine long-term gains and long-term losses to get net long-term gain (loss).
(2) Combine short-term gains and short-term losses to get net short-term gain (loss).
(3) Combine net long-term gain (loss) and net short-term gain (loss) to get net capital gain (loss).
(4) If there is both a net capital gain and a net long-term capital gain, the smaller amount of the two gets the special long-term gain tax treatment. The remainder of net gain over net long-term gain (if any) is taxed as ordinary income.
(5) If there is a net capital loss, it can be taken against ordinary income in the current year, with a limit of $3,000. You first use net short-term loss (if any) against ordinary income. If the net capital loss exceeds $3,000, it is carried over to the following year. The short-term and long-term components of the loss are separately carried over. So, if you have a $4000 net ST loss and a $2000 net LT loss, you'll take $3000 of the ST loss against ordinary income and carry over a ST loss of $1000 and an LT loss of $2000. If you have a $2000 net ST loss and a $4000 net LT loss, you'd take $2000 of ST loss and $1000 of LT loss against income and carry over $3000 of LT loss.

SORRY- the rules I gave you for short term gains and losses
ves income $1/$1 for short term losses and $2/1 on long term losses were old rules, no longer used. All I can say is the it was late when I replied :-(. Sorry for an confusion.

Rob