Proceeds and losses from the sale of stock and certain other property are known as capital gains and losses. Taxpayers who make money on the sale of stock are required to report that gain and pay taxes on it. Taxpayers who suffer a loss on the sale of stock may deduct a portion of the loss up to a specified dollar amount from their income. Typically, the amount of this loss must be reduced, or offset, by any capital gains.
Obtain Form 8949 for Form 1040. This form can be downloaded from the Internal Revenue Service website. Tax software should ask you if you have any capital gains or losses to report.
Determine whether your stock was a long-term or short-term holding. Stocks held less than one year are classified as short-term holdings.
Fill out the information about your particular stock in part I of Form 8949 if the stock was held short term and part II if the stock was held long term. You will need to know the date you purchased the stock, the amount you paid for the stock, the date you sold the stock and the amount you received when the stock was sold. The totals on page one and two of Form 8949 will carry over to Schedule D.
Follow the instructions on the Schedule D to finish computing the total amount of your loss and the amount of the loss you can claim in the current year. There is a limit to the amount of capital loss that can be claimed in a given tax year. You may carry over any unclaimed loss for use in future tax years.
Record the amount of loss calculated on line 21 of Schedule D and on line 13 (capital gains and losses section) of Form 1040.
When adding the first several lines on Form 1040 to arrive at your total income, deduct the amount of the loss you reported on line 13 as a capital loss.
- Note that the line numbers on forms are subject to change.
- The Schedule D from has a front and back side. Make sure you complete both sides of the form.
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