Like we mentioned earlier, every stock loss you write off when paying your taxes has to be “realized.” So, if you try to claim a loss just because a certain stock’s price has decreased in value, that won’t work.
If we’re using technical jargon, this loss is commonly called a “capital loss.” This type of loss can be short-term or long-term and is incurred when an asset like stocks, real estate, mutual funds or even bonds are sold at a loss. If you incur a loss on an asset that you’ve had for less than a year, that is a short-term capital loss.
The same concept applies to capital gains. Any long-term gain is incurred when an asset sold has been held for over a year. Generally, net profit or loss is calculated by calculating first short-term gain or loss and combining it with the long-term gain or loss.
So, if you have a long-term gain of $500 and a short-term loss of $350, your net profit will be $150 – and you will be taxed on that. If you have no long-term or short-term gains in a year, the net loss can be deducted from your taxes as a
tax write off.
Another frequent question investors have when paying taxes on capital loss is “Can long-term loss affect short-term gain?” No, long-term losses can only be used to offset long-term capital gains.
However net losses, be they short-term or long-term, can be used to offset either kind of gain. So, if you have a net loss of $650 and a net short-term gain of $700, you can use it to offset your gain and only be taxed on $50.
Does having a short-term capital loss actually benefit your taxes? Well, it depends on your
tax bracket. So, having a net loss in the 37% tax bracket will save you a lot more than it will in the 10% tax bracket.