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A capital tax loss occurs when you sell a capital asset for less than the amount you paid for it. The IRS has a very broad definition of capital assets, but generally they include stocks, bonds, mutual funds, real estate, precious metals, coins and collectibles.
When a Loss is a Good Thing
Although no one likes losing money on an investment, a capital loss on certain classes of capital assets may be deducted from your gross income when computing your taxable income.
In this way, through tax savings, you undo some of the negative impact of a capital tax loss.
When a Loss is Not a Loss
Not every capital tax loss may be used as a deduction on your income taxes. It is important to understand that only the losses on investment property, not on personal property, may be deducted. As an example, a commercial fisherman could deduct a portion of the loss on the sale of his boat. You could not deduct the loss on the sale of a boat you owned for the personal enjoyment of your family.
Additionally, only $3,000 of an allowable capital tax loss can be deducted from your gross income in any one year.
When a Loss is a Good Thing
Although no one likes losing money on an investment, a capital loss on certain classes of capital assets may be deducted from your gross income when computing your taxable income.
In this way, through tax savings, you undo some of the negative impact of a capital tax loss.
When a Loss is Not a Loss
Not every capital tax loss may be used as a deduction on your income taxes. It is important to understand that only the losses on investment property, not on personal property, may be deducted. As an example, a commercial fisherman could deduct a portion of the loss on the sale of his boat. You could not deduct the loss on the sale of a boat you owned for the personal enjoyment of your family.
Additionally, only $3,000 of an allowable capital tax loss can be deducted from your gross income in any one year.
