What is the maximum allowable capital loss deduction against ordinary income per year?

The maximum allowable capital loss deduction against ordinary income per year is $3,000 for individuals. This provision applies to net capital losses, which are the total capital losses minus any capital gains. When an individual’s capital losses exceed their capital gains for the year, they can use this excess loss to offset ordinary income, up to the $3,000 limit.

This deduction is a key component of the tax code, ensuring that taxpayers can receive some relief when their investments do not perform well. If the net capital losses are greater than $3,000, the remaining unused losses can be carried forward to future tax years, potentially providing additional deductions against ordinary income in those years.

Understanding this limit is crucial for taxpayers who engage in the buying and selling of securities or other capital assets, as it can significantly impact tax liability.