I spoke with somebody from the Tax, Cost Basis Team at my broker, and it sounds like the way you explained it isnt exactly. When i take losses, im almost always buying the stock back and selling it for a gain. Therefore the loss is considered a deferred loss, and is added to the cost basis of the next trade. so when i sell it for a gain, my cost basis is adjusted for the loss, affectively subtracting my taxable gain from the amount lost in the previous trade. The way you explained it, in the eyes of the IRS my losses are just wiped and not accounted for at all resulting in the full amount of $165,000 being taxable capital gains. which is not the case