How to Write Off an Investment Loss

In order to properly file an investment loss write off, it is important to know if it qualifies. First, the investment must have actually resulted in a financial loss. This means that the investment value has lowered and is no longer as high as the original cost. Writing off the investment loss will help to lower the amount of taxes that you will owe as well as the burden of the loss. Below are a few things to consider when writing off an investment loss on your taxes.

How Investment Loss Write Offs Work

When an investment loss occurs, you must first verify that the loss will not be recovered. You can deduct the amount of the investment loss during the year for which there is no expectation of being compensated. When writing off, you can include the amount up to $3,000. If there is any over the $3,000, it can be claimed each year up to that amount until it has been fulfilled. Claiming an investment loss on your taxes will not hurt you and does not reflect poorly on you. If you did experience an investment loss and are eligible to write it off, you should take advantage of this. It can help significantly to reduce the financial burden if you are under one. Note that unincorporated businesses cannot write off investment losses in the same manner. The liquidation of a small company may be required in the event of investment losses and another procedure should be followed.

Writing Off the Investment Loss

You will need to record both the date that you made the original investment as well as the date that same investment became uncollectible. This can be done on Schedule D. On the same form under the section of "sales price" you will enter the amount that recovered, if anything. This can be a partial recovery or none at all depending on the amount of loss that you experienced. Under the "costs or other basis" section, you will need to report the cost of the original investment. You can use original documents to verify the amount. Finally under the "gains or loss" section, you can calculate the total amount you actually lost and report it there. Make sure that you enter this as a negative number and do not assume that it will be considered as a loss if you don't.

Have Documentation

It is important that you are able to provide any documentation necessary if your deduction is questioned. Receipts, statements and any other documents should be saved to prove your write off. A copy of any documentation should be attached to the forms when you file your taxes. Keep another copy for yourself in case there is any question in the future when it comes to auditing. Note that it is important to keep any tax documents for 7 years as this is the amount of time the IRS has in which to contest deductions you made.

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