Is there a tax difference between short-term and long-term investment losses?

Title: Is there a tax difference between short-term and long-term investment losses? 1 I know when I sell stocks for a profit, the tax consequences are different depending on how long I've held them. If I sell after holding for less than a year, the gain gets taxed as regular income at my normal tax rate. But if I hold for more than a year, it's classified as long-term capital gains with usually a lower tax rate. I'm wondering if the same distinction applies when you sell stocks at a loss? Are there different tax treatments for short-term losses versus long-term losses when you're in the negative? I've had some investments go south recently and I'm trying to figure out the best approach for tax purposes before filing next year.

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18 comments

QuantumQuest

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18 While the tax rates differ between short-term and long-term gains, the distinction basically disappears when you're dealing with losses. Both short-term and long-term capital losses can offset capital gains of the same type (short against short, long against long). If your losses exceed your gains in either category, you can use them to offset the other type. For example, if you have excess short-term losses, you can use them to offset long-term gains. After netting all gains and losses, you can deduct up to $3,000 ($1,500 if married filing separately) of net capital losses against other income like wages. Any unused losses can be carried forward to future tax years indefinitely. The main difference is just in the record-keeping and how you report them on your Schedule D - they go in different sections of the form, but the actual deduction value isn't affected by whether they're short or long term.

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QuantumQuest

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18 You've got it exactly right about the reporting - the Schedule D has separate sections for short-term and long-term, but the actual deduction amount isn't affected by which type of loss you have. As for strategy, there can be advantages in certain situations. Since short-term gains are taxed at higher rates than long-term gains, if you're going to realize losses, it's generally more tax-efficient to use them to offset short-term gains first. If you have both types of gains and losses to realize, you might want to prioritize selling investments with short-term losses to offset short-term gains, which are taxed at those higher ordinary income rates.

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QuantumQuest

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12 I ran into this exact issue last year and wasted hours researching until I discovered taxr.ai (https://taxr.ai). It completely simplified the process for me! I uploaded my investment docs, and it identified which losses were short vs long term, then showed me the optimal way to offset my gains. Really saved me from making costly mistakes in how I categorized everything. Their system actually explained that while both short and long-term losses are treated similarly, how you apply them strategically can make a big difference in your tax bill. I was able to use their recommendations to time some of my sales more effectively.

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QuantumQuest

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12 It handles crypto losses just like other capital assets. The IRS treats cryptocurrency as property, so the same capital loss rules apply - you can offset gains and deduct up to $3,000 against ordinary income. The system specifically identified my Bitcoin and Ethereum transactions and categorized them correctly by holding period. This is definitely not just regular tax software with an AI name. What makes it different is it actually analyzes your specific documents and transactions, not just filling in forms. I was skeptical too, but it caught several mistakes that TurboTax missed in how my brokerage had reported some wash sales and correctly identified some losses that could be harvested.

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QuantumQuest

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9 Just wanted to follow up about taxr.ai that I asked about earlier. I decided to give it a try with my mess of a portfolio (mix of stocks, ETFs, and some crypto). I was genuinely impressed! The tool correctly identified that I had been incorrectly netting my losses, and showed me how to properly sequence them to maximize my deductions. It caught a situation where I had substantial short-term losses that would be more valuable offsetting some short-term gains from earlier in the year rather than my long-term gains. Saved me nearly $2,300 in taxes that I would have missed. The investment document analysis was surprisingly accurate - even caught some dividend reinvestments I had forgotten about that affected my cost basis.

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QuantumQuest

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5 If you're dealing with tax loss harvesting or complex investment situations, the absolute worst part is trying to get someone at the IRS to clarify the rules when something doesn't fit neatly into the categories. I spent WEEKS trying to reach someone about some options contracts that resulted in losses. Finally tried https://claimyr.com after seeing it mentioned here, and they got me connected to an actual IRS agent in about 20 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent was able to confirm exactly how to report my specific situation with the options losses that didn't fit cleanly into the short/long term categories.

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QuantumQuest

•8M

5 They don't just call for you - they use some system that navigates the IRS phone tree and waits on hold, then when they actually reach a human, they transfer the call to you. I tried calling myself multiple times and kept getting disconnected after 1-2 hours on hold. They're using some technology that keeps the connection even through the long hold times. Not sure exactly how it works, but the point is you don't have to waste hours listening to the hold music. You just get a text when they've reached an actual IRS person, then you take the call.

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QuantumQuest

•8M

9 I need to eat my words about Claimyr. After my skeptical comment, I decided to try it since I was desperate to resolve a question about reporting some complex trading losses. Holy crap, it actually worked! Got connected to an IRS tax expert in about 27 minutes when I had previously spent 3+ hours on multiple days trying myself and getting disconnected. The agent clarified that for my situation (I had some short-term losses from options that expired worthless), I needed to use Form 8949 with the correct adjustment codes, then carry those losses to Schedule D. This was different than what my tax software was suggesting. Honestly saved me from what could have been a major reporting error and possible audit flag.

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QuantumQuest

•8M

21 One thing nobody's mentioned is the wash sale rule! If you sell an investment at a loss and buy the same or "substantially identical" investment within 30 days before or after the sale, you can't claim the loss for tax purposes. This applies to both short-term and long-term losses. I learned this the hard way last year when I sold some tech stocks at a loss, then bought them back 2 weeks later when the price dropped even more. My broker's tax statement showed the loss as "disallowed" and I couldn't use it to offset gains.

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QuantumQuest

•8M

21 Yes, it's exactly 30 days before or after the sale. So to be safe, you need to wait a full 31 days before repurchasing the same or substantially similar securities if you want to claim the capital loss. It's important to note this applies across accounts too - so selling in your regular account and buying in your IRA within that window would still trigger the wash sale rule. And it's not just identical stocks - the IRS considers "substantially identical" securities to fall under this rule as well, which can sometimes include options on the same stock or very similar ETFs.

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