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John Burnside

Tax Loss Carry Forward

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What is a 'Tax Loss Carryforward'?


A taxpayer can sell an investment at a loss and then ‘carry forward’ that loss to offset future capital gains and income.

Stock market losses are capital losses.  Stock market gains are capital gains.  For tax purposes, gains and losses must be ‘realized’.  Which means the stock needs to be physical sold. 


Calculating a Capital Loss

Take your original cost basis (number of shares*price per share + transaction costs) and subtract the total sell proceeds.


Bought ABC Company (1000 * $20 + $9.95) = $20,009.95

Sold ABC Company (1000 * $11 - $9.95) = $10,990.05

$20,009.95 - $10,990.05 = $9,019.90


Two Types of Capital Losses

Short-Term Losses: when the stock is held for less than a year

Long-term losses: when a stock is held for more than a year


Deducting Capital Losses

Capital gains can be offset with capital losses during a taxable year.  If you don’t have capital gains to offset a capital loss, up to $3000 per year can be used to offset personal income.  If there is left over losses, they can be carried forward to future years.

There are specific rules on the proper way to match up short-term and long-term transactions that are beyond the scope of this post.  It is advisable to speak with your CPA or read more in the IRS Publication 544 for further details.

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