If an investor has realized gains and losses, but some of those gains and losses are long term while others are short term…if the investor has a net gain, what determines whether it’s classified as short term or long term?
Also, can long-term losses offset short-term gains and vice versa? Or can short-term offset only short-term and long-term long-term?
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Hi @Mass_coffee_louse, the long-term or short-term tax treatment of an investment is specific to the transaction. If the investor has multiple transactions, they can have a mix of long-term and short-term gains.
To determine the total net gain or loss, add them all together!
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But let’s say an investor sells at a loss a security he bought 2 years ago and also sells at a gain a security he bought 2 months ago, does the loss offset the short-term gain even though the loss was long term?
And vice versa: if the the loss was short term, can it offset a long-term gain? I don’t know if that would be the smart thing to do from a tax-saving perspective but, regardless, would that be allowed?
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Yes! The long-term loss offsets the short-term gain, and vice versa. While the details are very unlikely to be tested, the IRS allows losses of all kinds to be deducted against gains of all kinds. Short-term losses are first deducted against short-term gains. If a net short-term loss still exists, then those losses can be deducted against long-term gains. If net losses still exist, then the investor can deduct up to $3,000 annually against other kinds of income (typically earned income).
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Ah makes sense
Thanks
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