A short term loss can be defined as a loss that is realized after the sale or the exchange of an asset that is capital in nature and is held by the business entity for exactly a year or less than a year. A net short term loan is referred to and limited to a deduction of $3,000 per year from the net income, earned income or the ordinary income of a business entity. In order to determined the short term losses a business entity first calculates all the profits and losses that occurred during a given accounting period. In most of the cases all these profits and losses are declared on the part 2 of the schedule D. If the net figure of the calculation of all the profits and losses results to be a loss figures any amount of above $3,000 must be deducted from the income until next year.
For example we can explain the short term loss in the form of a case where a business entity or a business owner suffered from a loss of 10,000 dollars in a given accounting period. Now in order to repay the loss in the form of short term loss the owner or the business entity will deduct 3,000 dollars from the ordinary or the earned income for a continues period of three years. This means that he can declare a loss of 3,000 dollars for the next three continuous years. The last 1000 dollars can be deducted in the fourth year and can be deducted from the sales of the asset.