Law Stack Exchange is a question and answer site for legal professionals, students, and others with experience or interest in law. It only takes a minute to sign up.
Sign up to join this community
Beginning in the late 1970s, after capital losses offset capital gains dollar for dollar, the allowable deduction on the IRS 1040 form for capital losses coming from Schedule D was $3000. The same is still true today.
When did the limit on capital losses become $3000?
The second part of the originally posed question has been re-posted on the Politics SE where some had iterated it is better suited:
The Internal Revenue Code of 1954, all 1024 pages of it, was enacted in the course of a year, basically rebooting and rewriting the tax code, contains §1211 in in 68A Stat. 321:
(b) OTHER TAXPAYERS.—In the case of a taxpayer other
than a corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or ex-changes, plus the taxable income of the taxpayer or $1,000, whichever is smaller. For purposes of this subsection, taxable income shall be computed without regard to gains or losses from sales or exchanges of capital assets and without regard to the deductions provided in section 151 (relating to personal exemptions) or any deduction in lieu thereof. If the taxpayer elects to pay the optional tax imposed by section 3, "taxable income" as used in this subsection shall be read as "adjusted gross income".
This was rewritten in 1969, 83 Stat. 642, only 256 pages, to say
(1) IN GENERAL.—In the case of a taxpayer other than a corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges, plus (if such losses exceed such gains) whichever of the following is smallest: " (A) the taxable income for the taxable year, "(B) $1,000, or "(C) the sum of—
"(i) the excess of the net short-term capital loss over the net long-term capital gain, and " (ii) one-half of the excess of the net long-term capital loss over the net short-term capital gain. "(2) MARRIED INDIVIDUALS.—In the case of a husband or wife who files a separate return, the amount specified in paragraph (1) (B) shall be $500 in lieu of $1,000.
In 1976, Pub. L. 94-455, 1401(a,b) makes a further amendment, by replacing "$1,000" with "the applicable amount" and then defining the applicable amount for 1977 and for years thereafter:
(2) APPLICABLE AMOUNT.—For purposes of paragraph (1) (B), the term 'applicable amount' means— "(A) $2,000 in the case of any taxable year beginning in
1977; a n d " (]3) $3,000 in the case of any taxable year beginning after 1977.
So it has been that way since 1978.
The US federal tax law -- Title 26 USC, aka the Internal Revenue Code or IRC -- contains numerous money amounts, some of which are adjusted for inflation (aka 'cost of living') and some of which are not.
The adjustment procedure for several of the most basic amounts -- the 'brackets' of taxable income to which different rates apply, defined in IRC 1(a)-(e) -- is laid out in IRC 1(f)(3)-(7); the change to effectively use 'chained' CPI instead of the older fixed-basket version was made by TCJA'17 (PubL 115-97 sec 11002), hence the relatively recent base year here. Many provisions setting other amounts reference 1(f)(3), usually substituting a different base year and often modifying the rounding rule. IRS publishes the results of these adjustments annually; for example for the currently-upcoming year, most of them are in the recently released Revenue Procedure RP-2020-45 in 2020 IRB vol 46 (Nov. 9, 2020) (the Internal Revenue Bulletin is like a custom version of the Federal Register). Adjustments related to (tax-advantaged) retirement plans are published separately, and this year's don't seem to be out yet AFAICS.
OTOH many other amounts are not adjusted, including the one you asked about. It is Congress' choice when creating or amending the relevant provision whether to include an adjustment, and AFAIK neither inclusion or omission has ever been found improper.
