How to Sell Stock With a Capital Loss

As a stock goes down, so may the amount you have to pay in taxes if you sell at a loss.

One of the benefits of investing in the stock market is that the market does go up a lot. But it also goes down. Fortunately, if you lose money in the stock market, the capital loss can help offset any capital gains you made elsewhere to limit the amount you have to pay in taxes. Selling stock with a capital loss is a way you can pay less to the Internal Revenue Service for a year or, if it's a big loss, for many years.

Instructions

1. Keep good records. Unless you keep very good records of all your investments, you're going to miss out on how much you can potentially claim. In these records, make sure you keep track of all your short-term gains/losses and your long-term gains/losses.

2. Record your short-term capital gains and losses in Section I of the IRS's Schedule D. Short-terms gains (or losses) result from stocks you bought and sold within a year. For example, a short-term gain is what you made on a stock that you bought March 15 and then sold Dec. 21. Record all the amounts you made or lost. Tally it up and determine how much you have.

3. Record your long-term gains and losses in Section II of Schedule D. If you hold a stock for more than one year before selling it, the gain (or loss) is considered long term. These may be investments that you had to get out of because you realized that you were going to continue losing more money, or you decided to get out because you believed the stock was going to go down. Write the gains and losses all down and then tally up the amounts to determine how much you have.

4. Combine the two numbers together. The short-term and the long-term gains or losses, when combined, will give you a number to work with when determining how much you have to pay in taxes. If, for example, you had $2,000 in short-term losses but $2,400 in long-term gains, you'd have to pay taxes on only $400.

5. Save your records if you have a year where your losses are over $3,000. The IRS allows you to carry over losses to the next year's taxes. So if you lost $15,000, you would be able to record a loss of $3,000 this year, next year and the following year. For investors who lose even more, this can be a great way to pay less taxes each year.

References

• Bank Rate: Capital Losses Can Help Cut Your Tax Bill