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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.