What Effect Do Stock Losses Have on Your Taxes?

Nashua, NH Taxpayer Has Questions

Capital losses from the sale of stock, mutual funds, and other investments can help to reduce your tax bill.  If you had any capital gains over the year, this loss will first be used to offset the taxes paid on these gains.  For those years where you are still at a capital loss, this deduction can reduce taxes on other income, including salary and interest. This excess deduction is capped at $3,000 per year.  Any more than that amount can be carried over into subsequent years as a future tax deduction. 

A Nashua taxpayer had struggled with his investments throughout the year, selling some at a significant loss.  Wondering if there was a silver lining, he contacted the team at Merrimack Tax Associates to inquire how this would affect his tax bill.

Deducting Stock Losses on Your Taxes

To be able to deduct a stock loss on your taxes, that loss must be realized through the sale of the stock.  This loss will then offset taxes owed on capital gains that were incurred during the year.  There is no cap on matching your losses against capital gains.  If there were no capital gains or if the loss exceeds this profit, you can take tax a deduction on other income.  This deduction used against other income cannot exceed $3,000.  If the loss amount goes beyond this, any excess can be rolled into the following tax year to offset the taxes on capital gains or to again use up to $3,000 of deduction.

The last day for trading to claim losses or gains on your taxes is December 31, or earlier depending on what day this falls on.  When filing your taxes, any stock gain or loss will need to be reported on Schedule D.  A tax professional can help you to determine how to calculate your net gains and losses and file this accordingly.

The Nashua resident was pleased to hear that there was a silver lining to the investment loss that he incurred.  He is trusting the team at Merrimack Tax Associates to handle this calculation at the conclusion of the year but can expect to offset some of the money that he would pay in taxes through this loss.