How Are Capital Losses Treated and Limited against Ordinary Income?

Capital losses are first used to offset capital gains. If there is a net capital loss, it can be deducted against ordinary income, but this deduction is limited to a maximum of $3,000 per year ($1,500 if married filing separately).

Any net capital loss exceeding this limit must be carried forward to subsequent tax years indefinitely to offset future capital gains or the $3,000 ordinary income limit.