How much of a capital loss can I deduct on my tax return?

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.

Capital Gain and Loss Information Table

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
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
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

The table below shows where to report capital gains based upon their holding period.

Capital Gain Holding Periods

Asset Held for...	Your capital gain is...
A year or less	Short term. Report this on Form 1040, Part I of Schedule D.
More than a year	Long term. Report this on Form 1040, Part II of Schedule D.

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.

Related tax information about deducting a capital loss

Tax Directory Topics:
Itemized Tax Deductions

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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