Do Capital Losses Count Against the Standard Deduction?

When the time comes to complete your tax return, you want to make sure you take all of the deductions and write-offs possible to pay no more income tax than is necessary. For many tax payers, the standard deduction provides the best tax benefit. Capital losses are claimed on another part of your income tax form and can further reduce your tax bill.

Claiming Capital Losses

If you have capital losses from the sale of investments to claim, you must complete a Schedule D, "Capital Gains and Losses," form to attach to your tax return. The Schedule D combines your capital gains and losses to produce a net gain or loss, which transfers to your Form 1040 tax return. To have a capital loss write-off, you must have more capital losses than capital gains for the year. Your capital losses are listed in the income section on line 13 of the tax return.

Using the Standard Deduction

In the process of completing your tax return, the listing of deductions comes after all of the items that make up your adjusted gross income have been put on the Form 1040. You have the choice of itemizing the deductions for which you qualify and claiming the total of those deductions or taking the standard deduction, whichever is the higher amount. If you take the standard deduction, that amount plus your exemptions reduces the adjusted gross income amount to you your taxable income for the year.

Capital Loss Limits

The tax rules limit to $3,000 the amount of capital losses which you can take from the Schedule D to your tax return for any one year, as of publication. The use of losses is unlimited to offset gains on the Schedule D, but only the $3,000 can be used as a write-off against your other income. Losses in excess of the $3,000 can be carried forward and used in future years on your tax returns.

Tax Forms

If you have been using the short Form 1040A to file taxes and use the standard deduction, you must switch to the long Form 1040 to claim capital losses along with taking the standard deduction. Using the Form 1040 does not require you to itemize your deductions and you can still use the standard deduction, which is claimed on line 40 of the tax return.

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About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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