Can I Deduct Losses from Investments?
Yes, you can deduct losses from investments under certain conditions. In the United States, the IRS allows taxpayers to offset capital gains with capital losses, which can ultimately reduce your taxable income.
Types of Investment Losses
There are typically two types of capital losses:
- Short-term capital losses: These occur from the sale of assets held for one year or less.
- Long-term capital losses: These arise from selling assets held for more than one year.
Offsetting Gains
You can first use any capital losses to offset capital gains. For instance, if you have $5,000 in long-term capital gains and $3,000 in short-term capital losses, your taxable income from capital gains would be reduced to $2,000.
Deduction Limits
If your capital losses exceed your capital gains, you can deduct up to $3,000 ($1,500 if married filing separately) from your ordinary income for the tax year. Any remaining losses can be carried forward to future tax years.
Investment Loss Record-Keeping
It’s important to maintain accurate records of your investments and losses. You will need documentation, such as trade confirmations or brokerage statements, to substantiate your claims when filing taxes.