Capital Loss Deduction: Who Qualifies and What You Get
Learn how to use your investment losses to reduce your taxable income and lower your yearly tax bill.
A capital loss deduction allows you to use the money you lost on investments to lower your overall taxable income.
Who it's for
This is for investors who have sold assets for less than they originally paid for them, resulting in realized capital losses.
What you get
You can use these losses to offset your gains. If your losses are greater than your gains, you can use the remaining amount to offset up to $3,000 of your ordinary income each year.
What it costs you
There is no direct fee to use this deduction, but it does require careful record-keeping. You must track your cost basis, which is the original value of an asset for tax purposes, to prove exactly how much you lost.
The catch to know
While standard rules exist to prevent certain tax maneuvers, the rules regarding certain digital assets are currently considered a gray area. You should be aware that rules regarding "wash sales" may not apply to crypto in the same way they do to stocks, but tax regulations can be complex.
How to apply
- Gather your records showing the purchase price and sale price of your assets.
- Calculate your total net gain or loss for the year.
- Report these figures on your annual tax return.
- Check the official portal for the most current tax year instructions.