How to calculate net loss and deduct capital losses from your taxes (with table)

No one likes to brag about losing money. But if you lost money on an investment, you’ll probably want to tell the IRS all about it. That’s because capital losses can save you money at tax time.
Wondering what counts as a capital loss and whether you can deduct losses from your taxes? We’ll cover the basics of capital losses and how you can use them to save money on taxes.
What are capital losses, and how do they work?
A capital loss is when you sell an investment for less than you paid. With assets like stocks or cryptocurrency, you can calculate capital losses (or capital gains) by subtracting your basis (the amount you originally paid) from the sale price.
Read more: Yes, crypto is taxed. Here’s when you have to pay.
For example, if you paid $150 for a stock, then sold it for $100, you’d calculate your capital loss as follows:
$100 (sale price) - $150 (cost basis) = $50 capital loss
You could use that capital loss to offset capital gains for tax purposes. If your capital losses exceed your gains for the year, deduct up to $3,000 of losses from your ordinary income (or $1,500 if you’re married filing separately). You can carry forward any remaining capital losses for future tax years.
Read more: What is capital gains tax? Here’s when you owe, plus strategies to reduce your bill.
It’s a little more complicated when you calculate capital losses or gains on real estate. That’s because the original purchase price often doesn’t reflect your full cost of ownership. Let’s say you paid $200,000 for a rental property, spent $100,000 renovating it, and then sold it for $275,000.
Even though you sold the property for $75,000 more than you paid for it, you need to know the adjusted cost basis, or the full cost of ownership after accounting for factors like improvements and depreciation. Because your adjusted cost basis is $300,000, you’d have a capital loss of $25,000:
$275,000 sale price - $300,000 adjusted cost basis = $25,000 loss
Read more: How losses can lower your tax bill
When capital losses aren’t deductible
Even if you lose money on an asset, the loss might not be deductible as a capital loss. Here are some scenarios where you generally can’t use a capital loss to offset gains or ordinary income:
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You sold personal property: If you sell your home, vehicle, furniture, clothing, and other personal belongings for less than you paid, you typically can’t get a tax write-off.
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You have unrealized losses: You have to actually sell an asset to report a capital loss. If you bought a stock, then its price sank by 80%, but you’re still holding it, you have an unrealized loss. Until you actually sell the stock, you can’t use it to offset capital gains or income.
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It’s a wash sale. Some people use a tax-loss harvesting strategy, where you deliberately sell assets at a loss and use the capital losses to offset gains. But under wash-sale rules, if you sell securities at a loss but repurchase the same securities within a 61-day window (30 days before or after incurring the loss), you can’t deduct the loss.
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The loss occurred in your 401(k) or IRA: In most circumstances, you can’t claim capital losses on securities in retirement accounts like a 401(k) or individual retirement account (IRA) that already provide a tax break. You pay ordinary income taxes when you withdraw the money (if it’s a pretax account) or when you contribute the money (if it’s a Roth account).
Read more: Tricks millionaires use to pay less taxes
Rules to know when netting capital gains and losses
There are actually two types of capital gains and losses:
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Short-term capital gains and losses: Applies to assets you held for one year or less. Short-term gains are taxable at ordinary income rates of 10% to 37%.
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Long-term capital gains and losses: Applies to assets you held for at least one year and one day. Long-term capital gains tax brackets are lower than regular federal tax brackets, with rates of 0%, 15%, or 20%.
You use short-term losses to offset short-term gains; long-term losses offset long-term gains. Then, you can use either type of gain or loss to offset the other category. The result is your net capital loss or net capital gain.
Short-term vs. long-term capital gains and losses
| Short-term capital gains and losses | Long-term capital gains and losses |
|---|---|
| Applies to assets held for one year or less. | Applies to assets held for more than one year. |
| Gains are taxable as ordinary income; losses can offset gains. | Gains are taxable at lower long-term capital gains rates; losses can offset gains. |
| Tax rates of 10% to 37%. | Tax rates of 0% to 20% (15% for most taxpayers). |
Source: IRS
Here’s an example of how it works:
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You paid $60 for Stock A, then sold it six months later for $100: Short-term capital gain of $40.
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You paid $105 for Stock B, then sold it four months later for $75: Short-term capital loss of $30.
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You paid $200 for Stock C, then sold it three years later for $90: Long-term capital loss of $110.
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You paid $25 for Stock D, then sold it 18 months later for $60: Long-term capital gain of $35.
To net your gains and losses, you need to do the following:
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Calculate your short-term gains and losses: You had a short-term capital gain of $40 from Stock A and a short-term loss of $30 from Stock B, giving you a short-term capital net gain of $10.
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Calculate your long-term gains and losses: You had a long-term capital loss of $110 from selling Stock C and a long-term capital loss of $35 from Stock D, giving you a long-term capital net loss of $75.
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You’d use the gains and losses to offset each other: You'd use the $75 long-term capital loss to offset the $10 in short-term gains, giving you a net capital loss of $65. You could deduct the $65 from your tax bill when you file your return.
How to calculate net loss
Suppose that you bought 100 shares of a stock for $150 per share, meaning your basis is $15,000. Then the stock’s price tanked, and you sold your holdings for $80 per share, or $8,000.
You have a capital loss of $7,000 ($15,000 cost basis - $8,000 sale price). You didn’t have any capital gains or additional capital losses for the year, so you have a $7,000 net loss to report on your 2025 return.
You could deduct $3,000 of that loss from your 2025 taxes. You could then carry forward the remaining $4,000 to offset gains or lower your tax liability in future tax years. If you don’t have any capital gains in the next two years, you could deduct another $3,000 in 2026 and the remaining $1,000 in 2027.
Now let’s say that in 2025, you profited off the sale of another stock, earning capital gains of $9,000. You’d use your $7,000 loss to offset your $9,000, leaving you with a $2,000 net gain to report on your taxes.
Forms to use when reporting losses to the IRS
Use Schedule D to report capital gains and losses, then attach it to Form 1040. You may also need to provide details about each transaction, like your basis, sale price, and the dates you bought and sold the asset, using Form 8949. However, you don’t need to include Form 8949 for any transaction that’s reported on a 1099-B form you received from your brokerage as long as you don’t need to make adjustments to your basis, gains, or losses.
Many tax-filing software programs automatically calculate capital gains or losses using information from your 1099-B forms. Some allow you to import these documents directly from your brokerage, while others require you to manually input the information.
Read more: Free tax filing: How to file your 2025 return for free
How to carry forward losses from previous years
You can’t report a net loss of more than $3,000 (or $1,500 if you’re married filing separately) for any given year. But you can carry forward any remaining capital losses to future years indefinitely.
When you carry a loss forward, you need to complete a Capital Loss Carryover Worksheet on Schedule D. You’ll then use the short-term and/or long-term losses you reported on the previous year’s Capital Loss Carryover worksheet. If you’re planning to carry forward a loss, it’s important to keep solid tax records. You can continue using the loss to offset up to $3,000 of capital gains or income each year until you’ve depleted the loss.
Read more: What if I can’t pay my taxes? 5 options if you can’t afford to pay