How to Report Stock Market Losses on Income Taxes
If you have sold stock at a loss during the past year, you may be able to deduct the loss from your taxable income. By deducting stock losses, you can reduce your overall tax bill for the year. Deducting money you have lost on a stock sale is relatively straightforward for losses of $3,000 or less. Special rules apply to larger losses and losses on stocks only held for a short time.
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Things You'll Need
- IRS Form 1040
- IRS Form 1040, Schedule D
- IRS Publication 544
- IRS Publication 17
Instructions
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Calculate the amount of your loss. If you are married filing jointly, you can deduct up to $3,000 in stock losses on your current year's tax return. If you are single or married and filing separately, you can deduct up to $1,500 in stock losses.
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Calculate your stock losses on Form 1040, Schedule D. Use Part I to calculate your losses on stocks held for less than one year. Use Part II to calculate losses on stocks held for longer than one year. Enter the name of the stock in Column A, the year you acquired the stock in Column B and the year you sold the stock in Column C. Enter the amount you received from the stock sale in Column D. Enter your cost basis, including broker's fees and commissions, in Column E. Subtract the amount in Column E from that in Column D to calculate your loss. Enter this amount in Column F.
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Enter the totals from Schedule D on line 13 of Form 1040 to deduct the loss from your taxable income.
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Calculate this loss only on stocks that you have actually sold. "Paper" losses, meaning losses caused by a drop in value of stocks you hold but have not yet sold, cannot be deducted.
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Tips & Warnings
Consult a tax accountant if you not sure whether a stock loss qualifies as a deduction.
References
Resources
- Photo Credit stock market crash image by Paul Heasman from Fotolia.com
