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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Gone Fishing on August 28, 2015, 06:58:09 AM

Title: Short term vs long term losses for tax loss harvesting
Post by: Gone Fishing on August 28, 2015, 06:58:09 AM
I was thinking about harvesting some losses.  Most would be short term, but there would be some long term losses as well.  Can both offset regular income up to the $3k max?
Title: Re: Short term vs long term losses for tax loss harvesting
Post by: forummm on August 28, 2015, 07:37:24 AM
Yes. And you can carryover to next year anything over the $3k. And it's $3k net (so if you have realized $5k of gains and $8k of losses you can use all of the $8k in losses this year).

http://www.irs.gov/taxtopics/tc409.html
Title: Re: Short term vs long term losses for tax loss harvesting
Post by: johnny847 on August 30, 2015, 11:09:27 AM
To expand on that, when using losses to offset income, you use up short term losses first, then long term.

So for example, if you had $3000 in short term losses and $1500 in long term losses, and no gains for the year, you would use up $3000 in short term losses this year and carry forward $1500 in long term losses.

This is important because short term losses are better than long term losses, when you are not using them against income.
For example, say you're in the 25% bracket and have a $1000 long term capital gain, a $2000 short term capital gain. If you have a $1000 long term capital loss, your long term losses and gains cancel, and you're taxed at 25% on your $2000 STCG. If you have a $1000 short term capital loss, you're taxed on a $1000 LTCG at 15% and a $1000 STCG at 25%, leading to $100 less in taxes owed.