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Ordinarily, capital losses are balanced against capital gains. However, you can deduct up to $3000 a year to balance against ordinary income. I'm not saying this very well, TMFTaxes will say it better. Anyhow, suppose you have a realized capital loss of $5000 because you sold a bow-wow, and unrealized capital gains of zillions because you bought eBay at 20 and are still hanging on. Then, you can write $3000 off on Schedule D this year, and will have to save the remaining $2000 to write off next year, again assuming you do not realize capital gains.

Actually I'm probably missing something because the new rate of taxing long-term capital gains is 20%, whereas regular income is probably taxed at 28%. You wouldn't think Uncle Sam would let this implied inequity get by when it is in the taxpayer's favor. My excuse is that each ill-informed post I make contributes a bit more to the Fool's charity.
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