I have capital gains of x amount. I have losses of x amount. I want to offset my gains with my losses. Do I (a)apply my losses before my gains are taxed or do I (b) figure the taxes on my gains and then apply the losses to offset the gainsEx: CG = $60,000; losses = $10,000 (a) $50,000 x 20% = $10,000 thus leaving me with a $10,000 tax burdenor (b) $60,000 x 20% = $12,000 in taxes to be offset by $10,000 in losses to give me a $2,000 tax burden.
It's a little more complicated than you imagine. The good news is that a program like TurboTax will do all of the work for you.If you were to do it by hand, you would first separate all of the short term transactions (held less than 1 year) from the long term transactions. In each category, you then net out gains and losses. Now it gets more complicated depending on whether you have a net short term gain and a net long term gain, one loss and one gain, or both losses.If they're both gains, the short term gain is simply added to your other ordinary income and the long term gain gets a special lower tax rate.If they're both losses, you take a deduction for the short term loss and a partial deduction for the long term loss. There is a maximum loss that you can deduct each year, the rest can be carried to other tax years.If you have one gain and one loss you net them out against each other and the remainder is either a deduction or short/long term income.The best way to understand this is to get a 1040 Schedule D and work through some hypothetical situations.
I have capital gains of x amount. I have losses of x amount. I want to offset my gains with my losses. Do I (a)apply my losses before my gains are taxed or do I (b) figure the taxes on my gains and then apply the losses to offset the gainsIn addition to looking at the Schedule D, as already was suggested, read the article in the FAQ on netting capital gains and losses.TMF ExROPhil Marti
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