Is there any tax difference between short-term vs long-term losses when selling investments?

So I understand that when you sell stocks for a profit, the tax situation is different depending on how long you've owned them. If you sell after holding for less than a year, it's taxed as regular income (which is higher for me). But if you hold for more than a year, you get that sweet capital gains rate which is lower. But what about when you're selling at a loss? Does the IRS treat short-term losses (held less than a year) differently than long-term losses (held more than a year) when it comes to tax deductions? I've been cleaning up my portfolio and have some losers I'm thinking about dumping before year-end, but I'm wondering if I should be strategic about which ones I sell based on how long I've had them. I'm really just trying to figure out if I should prioritize selling some newer stocks I bought that tanked vs some older ones that also didn't work out. Any insight would be super helpful!

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19 comments

Giovanni Mancini

There actually isn't a difference in how much you can deduct between short-term and long-term losses, but there is a difference in how they're applied. The IRS requires you to first offset losses against the same type of gains before you can use them differently. Here's how it works: Short-term losses first offset short-term gains, and long-term losses first offset long-term gains. If you have excess losses of one type (like more short-term losses than short-term gains), then you can use those losses to offset the other type of gain. After all gains are offset, you can deduct up to $3,000 of net losses against other income like your salary ($1,500 if married filing separately). Any additional losses get carried forward to future years.

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Giovanni Mancini

Yes, if you have $5,000 in short-term losses but no short-term gains, you can absolutely use those losses to offset your long-term gains. The IRS requires matching types first, but excess losses can cross over. If you don't have any gains at all, just losses, you can deduct up to $3,000 of those losses against your other income for the tax year (like your wages). Any remaining loss amount above $3,000 gets carried forward to future tax years. So with your $5,000 loss example and no gains, you'd deduct $3,000 this year and carry forward $2,000 to next year.

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Fatima Al-Suwaidi

I just went through this exact situation! After trying to figure it out myself and getting nowhere, I used this AI tool called taxr.ai (https://taxr.ai) that analyzed my investment statements and explained exactly how my losses would be treated. It really cleared things up for me about the short vs long term loss question. What I learned was that while the deduction amount isn't different, the ORDER matters a lot for tax optimization. The tool showed me how to maximize my tax benefits based on my specific situation with a mix of gains and losses from different holding periods.

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Fatima Al-Suwaidi

It works by analyzing your financial documents - you can upload your trade confirmations or brokerage statements and it extracts all the relevant information. It doesn't need to connect directly to your brokerage, which I preferred for security reasons. You can just upload PDFs of your statements. TurboTax will calculate things correctly if you input everything correctly, but what taxr.ai does differently is help you strategize BEFORE you make your final trades. It helped me understand which specific lots to sell for optimal tax treatment based on my overall financial picture, not just do the math after the fact. It's more about tax planning than just tax preparation.

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Sofia Morales

Update on my skepticism about taxr.ai - I actually tried it with my mess of a portfolio (I did some stupid day trading this year lol) and it was surprisingly helpful. It showed me that I should actually be harvesting some of my long-term losses specifically because I had short-term gains that would be taxed at my normal income rate (37%!). The tool flagged that I could save almost $4,800 in taxes by strategically selling certain positions before year-end. What was cool is it showed me exactly which lots to sell rather than just giving general advice. I wouldn't have figured this out on my own or probably even with my regular tax software.

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Dmitry Popov

If you're having trouble getting answers from the IRS about how to handle your investment losses (I know I did), I highly recommend using Claimyr (https://claimyr.com). They got me through to an actual IRS agent in about 15 minutes when I was stuck on how to report some complicated loss carryovers from previous years. I was on hold for literally HOURS before using this service, and they have a video showing how it works here: https://youtu.be/_kiP6q8DX5c. The IRS agent I spoke with cleared up my questions about how to document my short-term and long-term loss carryovers that I've been accumulating over several bad investment years (ugh).

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Dmitry Popov

They don't call for you - they use some kind of technology that holds your place in the IRS phone queue, and then calls you when they're about to connect you. So you don't have to sit on hold forever, you just get a call when an agent is actually available to talk to you. I was extremely skeptical too! I honestly didn't believe it would work. But after trying to get through for weeks about my loss carryover question, I figured it was worth a shot. I was shocked when I got the callback and was connected to an actual IRS person who could answer my specific questions about how to document my trading losses from different tax years.

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StarSailor}

I have to eat my words about Claimyr. After my snarky comment, I decided to try it out of pure frustration after spending another 2 hours on hold with the IRS yesterday. I needed clarification on how to report some crypto losses alongside my stock losses (whether they should be treated the same way), and I was getting different answers from TurboTax forums. The service actually did connect me to an IRS agent in about 20 minutes. The agent confirmed that crypto losses follow the same short-term/long-term rules as stocks, which saves me a ton in taxes this year since I can offset some short-term crypto gains with my short-term stock losses. I'm still shocked it worked. Never been able to get IRS questions answered this efficiently before.

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Miguel Silva

One thing nobody's mentioned yet - there's a "wash sale rule" that can really mess up your tax loss harvesting strategy. If you sell a stock at a loss and then buy it back within 30 days before or after the sale (61-day window total), you can't claim the loss for tax purposes! I learned this the hard way last year when I sold some TSLA at a loss and then bought it back two weeks later when it dropped more. My tax software flagged it and I couldn't use that $7,400 loss to offset gains.

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Miguel Silva

Yes, the wash sale rule definitely applies across different account types! The IRS considers all accounts you own when determining if a wash sale occurred. So if you sell a stock at a loss in your individual brokerage account and then buy it back within 30 days in your IRA, 401(k), or even your spouse's account, it's still considered a wash sale. This is one of those gotchas that people often miss. The rule is designed to prevent you from claiming artificial losses while maintaining essentially the same investment position. The IRS doesn't care which account you use to repurchase - they just don't want you claiming losses when you haven't truly exited the position.

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Connor O'Neill

An additional strategy to consider with losses: if you're in a low income year, you might want to actually harvest some long-term GAINS instead of losses. If your income is low enough to be in the 0% long-term capital gains bracket (under $44,625 for single filers in 2025), you could sell some appreciated long-term investments and effectively pay zero federal tax on those gains. Then maybe save your losses for a higher income year where they'd offset income taxed at higher rates. Just something to think about depending on your situation!

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Carmen Flores

Yes, it's absolutely real! The 0% long-term capital gains rate applies when your total taxable income (including the capital gains) stays within that bracket. So if you're single and your regular income plus the capital gains you realize keeps you under $44,625, you pay zero federal tax on those long-term gains. The key is "total taxable income" - so you need to calculate your regular income PLUS the gains to make sure you don't push yourself into the next bracket. It's a legitimate tax planning strategy that many people don't know about. Just make sure you're looking at taxable income, not gross income, since deductions can help keep you in that sweet spot.

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