Tax Court imposes limit on capital losses

November 22, 2022

This time of year, taxpayers may harvest capital losses to offset capital gains and up to $3,000 of ordinary income.

One couple in a new U.S. Tax Court case, however, unsuccessfully tried to deduct a six-figure loss against ordinary income, based on the language in the tax return instructions.

On their 2017 return, the Ohioan couple reported a $123,822 long-term capital loss on their Schedule D.

The taxpayers noted the Schedule D instructions say to enter the smaller of their loss of $123,822 or the $3,000 limit, arguing that both numbers were negative. The couple argued the significant capital loss was lesser of the two.

Ultimately, the Tax Court sided with the IRS and limited the couple’s loss to $3,000, adding that the excess can be carried over. Read more.

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