How to Write Off Stock Market Losses

The point of investing in the stock market is to make money, but that doesn't always happen. Stock prices can go down as well as up. If your stock market losses for the year exceed your gains, you can claim a tax deduction on the net capital loss.

Step 1

Complete IRS Form 8949. Form 8949 provides space for you to list of all of your short-term and long-term capital gains and losses for the year. Short-term gains and losses are those realized on assets held for one year or less. Long-term gains and losses are those realized on assets held longer than a year.

Step 2

Complete Schedule D. On Schedule D, you use the gains and losses listed on Form 8949 to calculate your total gains and losses for the year and determine whether you owe capital gains tax or have a net capital loss that you can deduct. The IRS provides detailed instructions for completing Schedule D. When the form is complete, your total gain or loss is shown on line 16. If you have a loss, list the smaller of $3,000 -- $1,500 if you are married filing separately -- or your total net less loss on line 21. This is your maximum capital loss deduction for the year.

Step 3

Enter the amount shown on line 21 of Schedule D on line 13 of Form 1040. If you are a nonresident alien you file taxes on Form 1040NR. In this case, enter the amount shown on line 21 of Schedule D on line 14 of Form 1040NR. The capital loss deduction will be factored into your tax return as you fill out the rest of Form 1040.

Step 4

Attach Schedule D and Form 8949 to Form 1040. Submit your completed 1040 and all attachments to the IRS.

Items you will need

  • Form 1040
  • SCHEDULE D (Form 1040)
  • Form 8949

Tip

  • You can carry losses in excess of $3,000 forward to the next year and treat the excess loss as if you incurred it in that year.
  • You cannot deduct losses associated with property held for personal use, such as a home. Only losses on investment property are deductible.
  • You do not have to itemize your deductions to claim the capital loss deduction.

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