Capital loss tax deductions

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Capital loss tax deductions Anonymous 11/10/15 (Tue) 08:35:01 0dd689 No.859

So I was casually browsing Wikipedia and stumbled on this:

>https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States#Deferring_and.2For_reducing

>For individuals, if losses exceed gains in a year, the losses can be claimed as a tax deduction against ordinary income, up to $3,000 per year ($1,500 in the case of a married individual filing separately). Any additional net capital loss of the individual can be "carried over" into the next year and "netted out" against gains for that year.

Suppose you are just above a tax bracket. For example if you are making 40k from your job, your tax rate is 25%. You pay 10k in tax and get 30k after tax income.

If you invest in a stock, and it breaks even, you get 30k again. If the stock goes up, you'll lose some profit to tax, but still make more than 30k. If the stock goes down (doesn't really matter how much assuming you have "enough" of the stock, you need more for smaller decreases), you can sell enough of it until you have a 3k loss - this pushes you down into 37k taxable income which has a 15% rate, so now you owe 5.55k in tax and your income after tax is 31.45k - you still win even though the stock fell. In fact, if the stock falls, IRS is basically giving you a free $1,450.

Is this actually legal to do?

Anonymous 11/11/15 (Wed) 20:56:57 6181b7 No.863

When is says 'tax deduction against ordinary income' is that a deduction in the taxes you'd have to pay on that income, or the income itself? I'd assume the former; if you had 40k in income and had to pay 10k in tax, the deduction would be 3k from that 10k, not the 40k. You'd still remain in the same tax bracket since you DID make 40k that year in income.

Generally if the IRS has the right to a portion of your money they will get it, simple loopholes like this don't stop them. I'm not tax consultant though, you'd get more accurate responses on places like /r/tax or /r/taxpros.