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Losses Can Be Claimed on Taxes

what can be claimed on taxes

Tom Herman

Updated Oct. 26, 2008 12:01 a.m. ET

Q: If we lose money on stock, can we claim that as a loss on our taxes?

L.C. Tacoma, Wash .

A: Generally, yes.

Here's how the basic rules work: First, you can use your capital losses to soak up your capital gains, with no dollar limit. For example, suppose you sold a stock earlier this year for a $25,000 gain. Now you sell another stock for a $25,000 loss. Put those two together, and your loss erases your entire gain. Thus, you don't owe any capital-gains tax on that $25,000 gain.

Now suppose your capital losses are bigger than your gains, or that you have no gains at all. This may be the case for many readers this year. In that case, you can deduct as much as $3,000 of net capital losses (or as much as $1,500 if you're married and filing separately from your spouse) each year from your wages and other ordinary income. Additional amounts get carried over into future years.

This is a timely question. Many investors routinely take a fresh

look at their holdings around this time each year and dump losers they were thinking of getting rid of anyway, in order to take advantage of the capital-loss rules.

Q: In light of current market conditions, what is the likelihood of the annual $3,000 limit on deducting capital losses being increased? This limit hasn't changed in decades and is no longer a meaningful amount .

D.K. Littleton, Colo .

A: Sen. John McCain, the Republican presidential nominee, recently proposed increasing that capital-loss limit to $15,000. "John McCain will not penalize those forced to sell off in today's tough markets," a campaign news release says. Sen. McCain "believes that we should increase the amount of capital losses which can be used in tax years 2008 and 2009 to offset ordinary income from $3,000 to $15,000."

Sen. Barack Obama, the Democratic nominee, hasn't said anything on the issue of whether to raise the annual capital-loss limit, an Obama economic adviser says.

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Category: Taxes

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