What is the maximum capital loss deduction allowed against ordinary income?

The maximum capital loss deduction that an individual taxpayer can utilize against ordinary income is $3,000 per year. This rule applies to both individuals and married couples filing jointly, allowing them to offset their ordinary income with capital losses. When an individual recognizes a capital loss that exceeds their capital gains for the year, they may deduct this loss, but only up to this specified limit of $3,000. Any remaining losses can be carried forward to future tax years.

This deduction serves as a mechanism to help taxpayers who have lost money on their investments, providing some relief by reducing their overall taxable income. For taxpayers who might be married filing separately, the limit for deducting capital losses against ordinary income is reduced to $1,500, but the full $3,000 applies for single filers and couples filing jointly.