Not everything you invest in turns out the way you hoped. If you've lost money with certain investments, the Internal Revenue Service lets you use those losses to reduce your taxable income. Even if your losses are larger than your gains, you can claim a deduction and potentially carry over some of the losses for future years. At the end of the year, you should receive a Form 1099-B that shows all of your transactions so that you can report them on your taxes.
Divide your 1099-B losses into short-term losses and long-term losses. Short-term losses come from selling assets you've owned for one year or less. Long-term losses come from selling assets you've owned for more than one year.Step 2
Divide your short-term losses and long-term losses into two categories: those with Form 1099-Bs that report your basis, and those that do not. You must complete separate Form 1099-Bs for each category.Step 3
Complete a separate Part I of Form 8949 for your short-term losses that have basis reported, and those that do not. Include a description of the property, what you paid for it, what you sold it for, and when you bought and sold it. For example, suppose you have five short-term losses. Four 1099-Bs report your basis and one does not. In this case, you must complete two different Form 8949 Part I's.Step 4
Complete a separate Part II of Form 8949 for your long-term losses that have basis reported and those that do not. Include a description of the property, what you paid for it, what you sold it for, and when you bought and sold it. For example, suppose you have six long-term losses. Four 1099-Bs report your basis, and two don't. In this case, you must complete two different Form 8949 Part II's.Step 5
Copy the net gains or losses from each part of your Form 8949 to Schedule D. On Schedule D, you'll combine all of your gains and losses from each Form 8949 section to figure your net gain or loss for the year.Step 6
Report your net gain or loss from Schedule D on line 13 of your Form 1040 tax return. If you have a loss, you're limited to deducting $3,000, or $1,500 if married filing separately. You can carry over the remainder to future tax years.
- You cannot deduct losses on personal property. For example, if your home's value tanks before you sell it, you can't deduct that loss on your taxes.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."