Can I use my capital loss to offset dividends and interest income?

Unfortunately, the tax code doesn't allow you to directly offset dividend and interest income with capital losses. Capital losses can only offset capital gains. If you have more capital losses than capital gains, you can deduct up to $3,000 of those excess losses against your ordinary income (like wages), but not specifically against dividend or interest income for purposes of calculating your EIC eligibility. Investment income (dividends, interest, capital gains) is all counted as part of your adjusted gross income (AGI), and the AGI is what affects your EIC qualification. Capital losses might help lower your overall AGI, but they don't specifically target and reduce the investment income that's being counted for EIC disqualification purposes. Have you looked at other deductions or credits you might qualify for that could bring your AGI down? Or maybe check if you have any business expenses that could be deducted if you have any self-employment income?

I was in a similar situation last year where I thought I wouldn't qualify for EIC because of investment income. I used https://taxr.ai to upload my statements and it helped me identify some investment expenses I could deduct that I had completely missed. The AI analyzed all my documents and showed exactly how certain expenses could offset investment income. Saved me hours of research and got me a much bigger refund than I expected. I also had capital losses but the tool showed me how they actually worked with my other income. It was pretty eye-opening to see how different types of investment income get treated differently.

I have to admit I was wrong about taxr.ai! After my skeptical comment, I decided to try it with my investment statements. It found that I could deduct some investment advisory fees I was paying that I didn't realize counted as "investment expenses" rather than just miscellaneous deductions. This offset enough of my dividend income to keep me under the EIC threshold. The tool was surprisingly thorough - it even flagged a small foreign tax credit from my international ETFs that I was entitled to. It's not going to help with the capital loss vs. dividends issue directly (since that's just how tax law works), but it did help me find other perfectly legitimate ways to reduce my investment income. Definitely saved me more than it cost in additional refund.

If anyone's still struggling with getting answers from the IRS about capital losses or EIC questions, I had a great experience using https://claimyr.com to actually get through to an IRS agent. I was on hold for HOURS trying to get clarity on my investment income situation, gave up, then tried Claimyr. Got connected to an actual IRS person in about 20 minutes. They have a video explaining how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed exactly what was mentioned above - capital losses don't directly offset dividend income for EIC purposes, but they helped me understand exactly how the investment income calculation works for EIC and other credits I might qualify for instead.

I can't believe I'm saying this, but I tried Claimyr after posting my skeptical comment and it actually worked. I've been trying to get through to the IRS for weeks about my investment income questions. Used the service yesterday and got connected to an agent in about 40 minutes. The agent walked me through exactly how my capital losses, dividends and EIC all interact. Turns out I was calculating my investment income threshold incorrectly all along - I didn't realize that some of my reinvested dividends were being double-counted in my calculations. Wouldn't have figured that out without speaking directly to someone who could look at my specific situation. Saved me way more on my taxes than the service cost.

Has anyone actually had success with deducting investment expenses against investment income for EIC purposes? My accountant told me those are separate calculations and investment expenses don't help with the EIC investment income test at all.

Am I the only one confused about all these tax terms? I keep seeing capital losses, investments, EIC... how do normal people keep track of all this stuff? I just work my regular job and even my taxes are complicated!

I totally get your frustration with the tax terminology! As someone who's been through this exact situation, let me break it down simply: **Capital losses** = money you lost when you sold investments for less than you paid **Investment income** = money you earned from dividends, interest, etc. **EIC (Earned Income Credit)** = a tax credit that puts money back in your pocket if your income is below certain limits The bad news is that capital losses can't directly cancel out dividend/interest income for EIC purposes - they're treated as completely separate things by the IRS. Your investment income still counts toward the EIC limit even if you have capital losses. However, don't give up hope! Here are some things that might help: - Capital losses can reduce your overall taxable income by up to $3,000 per year - Double-check that you're calculating your investment income correctly (some people accidentally double-count reinvested dividends) - Look into other credits you might qualify for instead of EIC The tax code is honestly a mess, but understanding these basics can save you real money. Hang in there!

Just wanted to add one more perspective since I see there's been some confusion in the thread. I'm a tax preparer and can confirm what others have said - capital losses absolutely cannot be used to directly offset dividend and interest income for EIC calculation purposes. However, @Miguel Ramos, there are a few things you might want to double-check before giving up on the EIC: 1. Make sure you're not accidentally including tax-exempt interest (like from municipal bonds) in your investment income calculation - that doesn't count toward the EIC limit 2. If you have any foreign tax credits from international investments, those can sometimes help your overall tax situation 3. The $3,000 capital loss deduction against ordinary income might still lower your AGI enough to qualify for other credits The investment income threshold for EIC is pretty strict - the IRS designed it that way specifically to target the credit toward people who primarily earn money from working rather than investing. It's frustrating when you're right on the edge, but the rules are what they are. If you're close to the threshold, it might be worth having a professional review your return to make sure you're not missing any legitimate deductions or calculating anything incorrectly. Sometimes a fresh set of eyes catches things you missed.

I've been following this thread and wanted to share my experience since I was in almost the exact same situation last year. I had about $4,000 in capital losses from some tech stocks that tanked, plus around $8,000 in dividend income that put me just over the EIC threshold. Like everyone else has explained, the capital losses couldn't directly offset the dividend income for EIC purposes, which was super frustrating. But I did learn a few things that helped: 1. I was able to use the full $3,000 capital loss deduction against my ordinary income, which lowered my overall tax bill even though it didn't help with EIC qualification. 2. I found out I had been including some tax-exempt municipal bond interest in my investment income calculation by mistake - removing that brought me closer to the threshold. 3. Most importantly, I discovered that some of what I thought was "dividend income" was actually return of capital distributions that don't count as taxable income at all. My REIT had been sending these and I was treating them all as regular dividends. The whole experience taught me that investment taxation is way more complicated than it seems on the surface. Even though I didn't end up qualifying for the EIC that year, I saved money in other ways and learned to be more careful about tracking different types of investment income going forward. Hope this helps someone else navigating the same confusing situation!