When the value of a stock or other asset you own falls below your purchase price, it means you're losing money on the asset. However, you can't claim the loss on your taxes until you sell the asset and realize the loss. Once you've sold it, you have to report it on your taxes so you can use it to offset other income, which requires more than just putting the loss on the right line. If you don't have other investment income, or your loss is so large it more than offsets the income you've earned from other investments, you can use up to $3,000 per year of your long-term loss to offset ordinary income.
Report the long-term loss on Form 8949, Part II. You'll need to note what stock or other property you're selling, when you bought and sold it, your basis, and your proceeds from the sale.
Report your realized long-term gains and losses from Form 8949 on Schedule D. This form nets your gains and losses, along with short-term gains and losses, to determine your overall gain or loss.
Report your net capital gain or loss on line 8 of Form 1040. If you have a net loss, you're limited to deducting $3,000. If you're married filing separately, you are limited to deducting $1,500. For losses, put parenthesis around the number so it isn't accidentally treated as a gain. For example, for a $2,000 loss, write "($2,000)."
- You must complete a separate Form 8949 Part II for each of the following categories of sales: transactions with the basis reported by Form 1099-B; transactions without the basis but still reported by Form 1099-B; and transactions not reported by Form 1099-B.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."