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How much of a capital loss can I deduct on my tax return?
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| Almost everything you own and use for personal purposes, pleasure, or investment is a
capital asset. When you sell or trade a capital asset, generally the difference between
it's tax basis and the amount you sell or trade it for is a capital gain or
capital loss on your tax return. Capital gains and
capital losses are classified as long term if you’ve held the property for more than one year
or short term if you’ve held the property for one year or less.
Use the table below to determine whether your
capital gain or capital loss is capital or ordinary and
on what tax form to report it.
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| If you sold... |
Your gain is... |
Your loss is... |
Report it on... |
| Stocks, Bonds, Mutual Fund shares, or land held for investment purposes |
Capital Gain. See Holding Periods. |
Capital Loss. See Holding Periods. |
Form 1040, Schedule D
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| Accounts or Notes receivable acquired in the ordinary course of business or from sales
of inventory or property held for sale to customers. Inventory of a business held for sale
to customers. |
Ordinary income. |
Ordinary loss. |
Form 1040, Schedule C if self-employed; Schedule F if a farmer;
Form 1065 if a partnership; Form 1120/1120-S for a corporation. |
| Depreciable: residential rental property, cars, trucks, computers, machines, fixtures,
equipment, used in your business. |
IRC section 1231 determines whether the gain is ordinary income or capital gain. |
Ordinary loss if there is a net IRC section 1231 loss. |
Form 1040,
Form 4797
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| Personal residence, autos, jewelry, furniture, art, coin or stamp collections, held
for personal use. |
Capital Gain. See Holding Periods. |
Not tax deductible. Although profits are taxable, losses are not
tax deductible. |
Form 1040, Schedule D |
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table below shows where to report capital gains based upon their holding period. |
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| Asset Held for... |
Your
capital gain is... |
| One year or less |
Short term. Report this on
Form 1040, Part I of Schedule D. |
| More than one year |
Long term. Report this on
Form 1040, Part II of Schedule D. |
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To determine if you have a capital gain or
capital loss, you must know the
tax basis
of the asset you sold. If you are unsure of your tax basis, refer to IRS Publication 551, Basis of
Assets.
You fully deduct capital losses against capital gains on
Form 1040, Schedule D. If capital losses exceed capital gains you can deduct the excess
on your tax return as follows. Your allowable capital loss
tax deduction on your tax return for any
tax year, figured on Form 1040, Schedule D, is limited to the lesser of:
 | $3,000 ($1,500 if you are married and file a separate
tax return), or |
| Your capital loss as shown on
Form 1040, line 18 of Schedule D. |
If you have a capital loss on
Form 1040, line 18 of Schedule D that is more than the yearly limit
on capital loss tax deductions, you can carry over the unused part of the
tax deductible capital loss to later tax years until it is
completely used up.
Death of the taxpayer
If the taxpayer dies and
capital loss carry overs are not used up the taxpayer's estate may
not deduct the remaining capital loss. An unused individual
capital loss may not
be carried over by a surviving spouse.
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Related tax
information about deducting a capital loss |
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Itemized Tax Deductions |
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IRS publications about
deducting a capital loss:
Refer to IRS Publication 17,
Your Federal Income Tax, or Tax
Topic 409, Capital Gains and Losses, for additional information. For more
information about capital gains and capital losses, see IRS Publication 544, Sales and
Other Dispositions of Assets. The maximum tax rate on a net capital gain has been
reduced for some sales and exchanges after May 5, 2003. For more information on the
maximum tax rate, refer to IRS Publication
544.
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Ask Julian Block your IRS and tax questions! |
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If you can't find the answer to your IRS or tax question in our
web you can call former IRS Special Agent and one of the country's foremost tax attorneys, nationally syndicated columnist ("The Tax
Adviser") Julian Block. Julian is also the tax Editor of Mutual Funds Magazine, America's premier investment magazine. To
call Julian for a tax consultation click
here. |
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