Capital Loss Limitations
Deducting Capital Losses
Capital losses may offset capital gains. If capital losses exceed capital gains, only a limited amount of the excess loss may generally be deducted against ordinary income each year, with remaining losses carried forward.
- Capital losses first offset capital gains.
- Limited deduction against ordinary income.
- Unused losses generally carry forward.
- Carryforwards retain their character.
Tip
Know the general limitation concept, even if annual dollar amounts change over time.
Summary
Capital loss limitations prevent taxpayers from immediately deducting unlimited investment losses.
