Capital Loss

Capital loss happens when you have lost money in the stock market by selling an equity for less then what you bought it for. This can be used to Wright off your taxes.

Capital loss must first be used to Wright against capital gain. Also it is split into two categories, long term (1+ years) and short term (under 1 year). Your losses are figured into a category and used to deduct the gains from that category first.

For instance if you have $4,000 long term gains and $1500 long term losses the losses must be used to deduct the long term gains before deducting from short term gains. Any remaining loss can be used to deduct against the other category.

If you have a net long term loss of -$500 and a net short term gain of $1800 you can deduct the $500 long term loss against your $1800 short term gains, giving you $1300 short term gains. If you had a bad year and have a net loss in your account you can use up to $3,000 in losses to deduct against other income.

If your total net loss is over $3,000 you will not be able to deduct it all that year, but it can be carried over to use next year.

Of course tax laws are constantly changing you must consult a tax advisor to get the up to date information about how to handles your stock market losses.