Capital loss

Capital loss is the difference between a lower selling price and a higher purchase price, resulting in a financial loss for the seller.[1][2]

United States

The IRS states that "If your capital losses exceed your capital gains, the excess can be deducted on your tax return." Limits on such deductions apply. For individuals, a net loss can be claimed as a tax deduction against ordinary income, up to $3,000 per year ($1,500 in the case of a married individual filing separately). Any remaining net loss can be carried over and applied against gains in future years. However, losses from the sale of personal property, including a residence, do not qualify for this treatment.[3]

Special wash sale rules apply if the same or substantially similar asset is bought, acquired, or optioned within 30 days before or after the sale.[4]

According to 26 U.S.C. §121, a capital loss on the sale of a primary residence is generally tax-exempt.. IRC 165(c) is a stronger source that limits the loss on the sale of a personal residence. IRC 121 is for exclusion of gain of primary residence and does not talk about loss.

References
  1. O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 283. ISBN 0-13-063085-3.CS1 maint: location (link)
  2. "Capital Loss Definition". Investopedia.
  3. See subsection (b) of 26 U.S.C. § 1212.
  4. IRS TAX TIP 2009-35


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