I have had a couple of clients call me and ask about the tax treatment of losses from the sale of stocks and mutual funds this week and so I decided to put up a brief post on the topic.
In simple terms here is how stock losses from the sale of stocks and/or mutual funds are handled on your individual tax return:
First of all gains and losses from the actual sale of stocks and/or mutual funds are considered capital gains or capital losses.
For each transaction, you have to calculate the gain or loss for that specific transaction. These individual gains or losses are combined and result in a total net gain or net loss.
If the loss is a net loss then you can deduct a maximum of $3000 from your taxable income on your individual tax return each year. If your loss is greater then $3000 then this loss is carried forward to your next tax year.
The rules governing gains and losses are complicated and this post just discusses the topic in general terms!
Mike Sylvester, CPA/ABV “accredited in business valuation”