Similar to annuity trusts, unitrusts reported unusually large net short-term capital losses
Example 3: The facts are the same in Example 1, except that the trading activity produced $200,000 of short-term capital losses
instead of gains.
Individual taxpayers may deduct two different types of bad debts: business bad debts, which are deductible as ordinary losses if completely or partially worthless, and nonbusiness bad debts, which are short-term capital losses
taken only when entirely worthless.
Excess short-term capital losses
also may offset up to $3,000 of regular income per year.
The Tax Court held that the doctor was an investor, not a professional money lender; thus, the losses were nonbusiness bad debts and short-term capital losses
Furthermore, up to $3,000 ($1,500 if married filing separately) of excess long or short-term capital losses
can be used to offset ordinary income from such sources as your job or bank interest.