Topic: How does Capital Loss Tax Work? IRS Says: (Read 930 times)

You don't get the money back, you can deduct $3,000 from your income every year and pay taxes on $3,000 less income every year until you have no additional capital losses.

It is really complex thing. Let me put two things into perspective.
There are two type of capital loss, Realized losses occur on the actual sale of the asset or investment, whereas unrealized losses are not reportable.

1. Unrealised loss: An investor buys a stock at $50 a share in May. By August, the share price has dropped to $30. The investor has an unrealized loss of $20 per share. He holds on to the stock until the following year, and the price climbs to $45 per share. He sells the stock at that point and realizes a loss of $5 per share. He can only report that loss in the year of sale; he cannot report the unrealized loss from the previous year.

2. Realised loss: Let, you realised a capital loss of $30,000 in a year on one asset. But if your capital gain is more than that for that year be it any other asset (>30,000). Then you are not entitled for tax return. Let your overall capital gain is $10,000 for that year. That means you had a capital loss of $20,000. You can only deduct an additional $3,000 of loss against your other income for that year. You can deduct the remaining $17,000 of loss in $3,000 increments every year from then on until the entire amount has been deducted. However, if you realizes a capital gain in a future year before you have exhausted this amount, then you can deduct the remaining loss against the gain. Therefore, if you deduct $3,000 of loss for the next two years and then realizes a $20,000 gain, you can deduct the remaining $11,000 of loss against that gain, leaving a taxable gain of only $9,000.

In your case it largely depends upon the company you invested in. Many factors play into it. You got to see it yourself. Claiming such benefits aren't that easy.

Ok, it would be a bit confusing to understand this, check the example here, it may help you.

Example:

Your income: $60,000

Sold house for lower price : $5000 - $2000 (Carried over to next year)
(Capital loss)                     =$3000 (The annual deduction limit that IRS was referring to)

Other losses : $5000
(Non Capital loss)

Gross Income: $52,000

---

NEXT YEAR:

Income: $60,000

From last year: $2000 (You have to pay this year)

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Hope this helps now.

But that link you gave me said "If a net capital loss exceeds $3,000, the excess must be carried over to the following year and is included in the computation of capital gains and losses of that year. If the loss is not used up in the following year, it may be carried to future years until it is used up."

So you agree with me that the $3000/yr until it is all gone sound waaaaay TOO GOOD TO BE TRUE....and yet these websites are saying it. By that logic, even if you lose 30K in trading, you can still get it all back in only 10 short years....which is ridiculous!!! Or 300K in a lifetime of 100 years....meaning if you start at a young age, you've got 200-300K in your lifetime to play and not suffer any loses over your lifetime. Like WTF! That sounds crazy!!!

I need someone who did suffer these loses to confirm that it is true.

OR...I was thinking does it work like this:
Your income for that year is 10,000. You lose 3000, and so you only pay tax on that remaining $7000?
Then this is the expected terrible return i expected which makes more sense.
if your tax is 15% that year, then you only get back a couple hundred

Not sure if I understood it correctly. It just means you only pay less this year, but you have to pay again next year. For example you have a capital loss of $4000, and so you pay $1000 instead, but you would have to pay that $3000 again next year. (they probably wouldnt give everyone a free $3000 deduction every year )

Check this site that explains this also, may help you to understand.
http://loopholelewy.com/loopholelewy/13-capital-gains-losses/capital-gains-losses-03-capital-losses-ordinary-losses.htm

no one knows?

The IRS website says "If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000"

So Does this mean that if I invested $9000 into a company. And then say the company goes bankrupt and I lose all $9000 dollars.
And assuming I made no Capital Gains, does that mean that for the next 3 years, I can get $3000 in deductions on my taxes until  the Loss = 0?


Doesn't that sound too good to be true? If that's true when that means for $3000/year, anyone can play with investments and no suffer any consequences?
I thought investing was a dangerous thing to do but if you can just deduct all your losses, then that's like giving you a "free play ticket" of $3000/year

Thanks!