In this segment of "Financial Planning Q&A" on Motley Fool Live, recorded on Dec. 1, retirement expert Robert Brokamp explains how losses and gains offset each other when selling stocks.
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Robert Brokamp: Rob says, if I sell a long-term stock for a loss, do I have to sell a long-term stock for a gain to be able to write-off up to $3,000?
No. The way it works here is if you have both losses and gains, they offset each other. Long-term offsets long-term, short-term, short-term, and then they offset each other. You net out the gains and losses first.
If you have loss left over, then you can offset up to $3,000 of ordinary income. If you have greater than $3,000 in losses, then you can carry that loss forward to the next year. This is a few years ago, but I was talking to a Fool and they were still carrying forward losses from the dot-com days.
You can carry them forward every year, though not eternally. Once you pass away you can not pass those [laughs] on to the next generation. If you have sold stock at a loss, you do not have to then sell stock at a gain, you can just use that to offset ordinary income.