A capital gain or capital loss refers to the profit or loss realized when you sell a capital asset. There are many kinds of capital assets, which include stocks, bonds, jewelry, artwork and real estate. The Internal Revenue Service taxes long-term capital gains at 15 percent. If you sustained a capital loss, then you can offset up to $3,000 of these losses per year. If you lost more than $3,000, you can carryover that loss indefinitely into subsequent years until the loss is fully deducted. If you have the right information, calculating your capital loss is relatively simple.
Calculate the cost basis of each asset that you sold during the tax year. The cost basis is the total of what you paid for the asset when you bought it, including any fees or commissions you paid when you bought and sold it. For example, if you bought 100 shares of a stock at $50 per share, you spent $5,000 on the asset itself. However, if you paid a broker $50 when you bought the stock, and another $50 when you sold it, add these amounts to the cost basis. This brings the cost basis for the stock to $5,100. Use this process for each asset you sold during the year.
Calculate your gain or loss from each sale. Subtract the cost basis from the sale price. If you get positive number, you earned a capital gain. If you get a negative number, it's a capital loss.
Identify which transactions are short term versus long term, and add them together. The IRS considers assets held for a year or less as a short-term transaction, and anything held for longer than a year is considered a long-term transaction. Calculate your net short-term gain or loss by adding them together. Then calculate your net long-term gain or loss by adding those together.
Determine your net capital gain or loss. If the sum of your net short-term capital loss and your net long-term capital loss carryover is more than your net capital gain, you can deduct the loss from your ordinary income up to $3,000. If your loss is greater than $3,000, you can carryover the remaining loss in future years until it is fully deducted.
Report the activity on Form 1040's Schedule D. A net capital loss reduces how much income tax you owe.
Items you will need
- Dates you bought assets
- Dates you sold assets
- Amounts you spent buying assets
- Amounts you earned selling assets
- Amounts spent in fees and commissions to buy assets
- Amounts spent in fees and commissions to sell assets
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