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For example, if I have $7000 in short term gain, can I offset $5000 in short term loss against it?

If I understand the code correctly, you can deduct as much short-term loss as you have provided that the net (i.e., the total after subtracting the loss from the gain) does not exceed the lower limit - in this case $3000 if married filing jointly.

Another point you mention is deducting the short-term losses from short-term gains. Someone, please correct me if I am wrong, but you can deduct losses from gains in any combination (e.g., short-term loss from long-term gain, short-term loss from short-term gain, long-term loss from short-term gain, and long-term loss from long term gain). I think the key is the net loss versus the net gain.
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