The many failed attempts to update the $3,000 limitation on capital loss deductions
Also... Generative AI isn't ready to touch money.
The 26 U.S. Code § 1211 $3,000 limitation on capital losses is mentioned in nearly every article, whitepaper, and journal article having anything to do with tax management1.
The limit is hardcoded into Form 1040 Schedule D.
I call the limitation on losses of $3,000 “LOL3K” because it hasn’t been updated since 1978, and that’s ridiculous.
I chronicle LOL3K from the 1913 inception of the federal income tax to 2025 at lol3k.com
In today’s dollars, LOL3K should be around $15,000.
In the timeline below, the 💀💀💀 emojis represent Congress and candidate (in the case of John McCain’s 2008 presidential run) attempts to update and inflation-index the $3,000 limit.
LOL3K was AI-supported and human-verified
LOL3K may seem like a strange way to spend one’s time. I agree.
I have the compulsion to create, which means I’m always making something. LOL3K is just one of those things.
I used AI to make LOL3K. It was helpful, but a pain.
LOL3K has two components:
The website content (facts, documents, numbers, dates, memes, etc.)
The code rendered in the browser
Website content
The website content has creative stuff (like the retro layout and memes) and factual research stuff.
AI was helpful for about 30% of the research. Too many times, ChatGPT and Gemini hallucinated congressional attempts to update LOL3K, and I would dig and dig to find zero supporting evidence.
Gen AI was also not a thorough research assistant.
This includes the deep research features that are all the rage nowadays. In whatever instance of researching or prompting, the AI would simply repeat what it had already discovered, then give up.
I eventually went to congress.gov and govinfo.gov, did some simple querying, and discovered a new trove of instances and documentation that AI missed.
I include sources and screenshots of everything I discovered because hallucinations have burned everyone’s trust, and I just wanted all the facts verifiably close by.
Website code
I was a software developer for five years (Parametric and Zillow Group) and have built or supported countless personal and enterprise applications. I still write code almost every day.
So, I was curious to try one of the vibe-coding solutions, loveable.dev.
It saved me time! But the code was buggy, difficult, and slow to tweak, especially visual stuff.
I ended up using the boilerplate code Lovable provided, then made my final changes in my local development environment to speed up the development process. I use Cursor for local development, and that was very straightforward.
AI is probably the future. Gen AI is a subset. It will probably improve. But it’s hallucinating more, and running out of quality training data.
Just know that AI is a tool, and probably not a replacement… for now, anyway.
AI anti-hype
Have a great weekend.
Some recent examples…
“Your losses don’t just offset your gains; they can also offset up to $3,000 of ordinary income each taxable year.” (Morgan Stanley)
“These capital losses are used to offset an equal amount of capital gains in other parts of an investor’s portfolio and/or up to $3,000 of ordinary income.“ (Vanguard)
“Harvested losses can be used dollar for dollar to offset capital gains. Investors can also offset up to $3,000 per year of regular income with realized losses.” (BlackRock)
“If capital losses exceed gains at year-end (or if there are no gains), losses can offset up to $3,000 in non-investment income, even though it is often taxed at a higher rate than capital gains.” (State Street Global Advisors)
“Capital losses can also offset up to $3,000 in ordinary income.” (Northern Trust)
“In the case of individuals, capital losses (losses from the "sale or exchange" of a "capital asset") are allowable as deductions in the current year only to the extent of the amount of capital gains for the year plus $3,000.” (Debunking the Basis Myth Under the Income Tax)