Calculating capital gains tax for stocks, is this correct?

Question

Let's say I purchased and sold stocks short term since May. My total losses are $-3000
Next month (Dec) if I were to make a profit of $5000, would the tax due be:
5000
-3000
------
+2000 x 25%= $500?

OR

5000x25%=$1250?

I've looked this up, but found nothing as cut and dry as the above example. Is it that simple or am I missing some factors?

By the way, I fall into the 10-15% tax bracket.

Answer 1

Stock gains or losses are not realized until you sell the stocks. If you bought stocks in May that have fallen $3,000 in value and sell them now you'd have a $3,000 loss. If you simply held on to them and they bounced back to a $5,000 gain in Dec when you sold them you'd have a $5,000 gain. The $3,000 "loss" between May and today is meaningless since you didn't sell the shares and realize the loss.

Short term CG are taxed at your marginal rate. If your marginal rate is 15% you'd pay $750 on a $5,000 gain. If you sold stocks and realized the $3,000 loss it would offset the $5,000 gain for a net gain of $2,000 and a tax of $300 if your'e in the 15% bracket.

Answer 2

No, you'd be taxed at whatever your bracket is, not at 25% unless the additional income from the capital gains took you into the 25% bracket. If you're in the 15% bracket, your tax on the stock sales would be the net profit of $2000 times .15, or $300.

Answer 3

The max short term capital loss (STCL) is 3,000 (after being applied to any capital gains).

Your tax will be either 10% or 15% depending on where your taxable income is before the gain/loss is factored in.

So in your example, your tax would be the following:

2,000 *10% = $200
2000 * 15% = $300

You will always offset any losses first against gains. Feel free to e-mail if any questions..

Answer 4

Capital gains and losses offset each other. You are taxed on your net gains (Gains less losses). Or your net loss will offset your income (losses less gains). You are limited to a $3000 net capital loss per year. The rest would be carried forward.

Answer 5

bostonia, I think he said he did realize the loss and he is deducting his losses ($3000 limit) from his gains and is only being taxed on the $2000 that he did actually make... right?

Answer 6

i came to the same conclusions as Bostonia