Great question! Unfortunately, it’s not that easy.
There are three basic categories of income — passive, active, and portfolio. All three are treated a little differently for tax purposes, and the rules for one generally can’t be applied to one another.
Your $50,000 in capital losses can’t reduce your $300,000 in business profits, because they belong in different categories of income.
At most, the IRS allows taxpayers to apply $3,000 of capital losses to active income every year. So your taxable business income would be $297,000.
Even though your capital loss can’t be fully utilized in the current year, it can be rolled over every year and applied to future portfolio income, with up to $3,000 eligible to offset ordinary income every year.
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Sarah is an Enrolled Agent with the IRS and has 6 years of tax and accounting experience. She's an avid hiker, animal lover, and self-proclaimed chocolate connoisseur.