Can stock losses be written off? A tax guide

Can stock losses be written off? A tax guide

This article answers the common question "can stock losses be written off" and explains how realized capital losses on taxable investment accounts can reduce taxable capital gains and, up to specified limits, ordinary income. You will learn what counts as a deductible loss, how losses are reported, the $3,000 annual deduction cap, the wash sale rule, tax-loss harvesting strategies, how losses carry forward, and practical steps to claim and track losses. The phrase "can stock losses be written off" appears throughout to keep the topic focused and easy to search.

Key concepts

Realized vs. unrealized losses

Only realized losses are relevant for tax deductions. A realized loss occurs when you actually sell a security for less than your adjusted cost basis. An unrealized or "paper" loss — where the market value is below your purchase price but you have not sold — does not reduce your taxes for the year.

Because the core question is "can stock losses be written off," remember: only when you lock in the loss by selling can you generally write it off for tax purposes. Holding a declining position does not let you claim a deduction until the sale is completed.

Capital assets and what counts as a “stock loss”

Most publicly traded shares, ETFs, corporate and municipal bonds, and similar investments are treated as capital assets. Losses on those assets held in a taxable account normally qualify as capital losses for tax purposes.

Losses that generally do not produce a deductible capital loss for your personal tax return include trades within tax-advantaged retirement accounts (e.g., IRAs, 401(k)s) and certain transfers between accounts. If you sell securities inside an IRA or 401(k) at a loss, you cannot write off that loss on your individual tax return.

Short-term vs. long-term losses

Holding period matters. A security sold at a loss after being held one year or less results in a short-term capital loss. A holding period greater than one year produces a long-term capital loss. The distinction matters because short-term gains are taxed at ordinary-income tax rates while long-term gains receive preferential rates; netting rules treat losses by category before combining them.

The practical answer to "can stock losses be written off" depends in part on whether losses are short-term or long-term, because of the ordering rules when offsetting gains.

How capital losses affect your tax bill

Offsetting capital gains

When you realize losses and gains in the same year, losses offset gains according to IRS netting rules. The typical order is:

• Net short-term gains and losses against each other.
• Net long-term gains and losses against each other.
• If one side is a net gain and the other a net loss, they offset each other to produce a single net capital gain or loss.

Because of this netting sequence, a short-term capital loss first reduces short-term gains (which would otherwise be taxed at higher rates) before it can be used against long-term gains.

Deduction against ordinary income and the $3,000 limit

If your net result after netting is a capital loss, you can generally deduct up to $3,000 of that loss ($1,500 if married filing separately) from ordinary income on your federal tax return in a tax year. This is a federal rule used widely in IRS guidance and tax resources.

For example, if you have no capital gains and $8,000 of net capital losses, you can deduct $3,000 on your Form 1040 in the current year and carry forward the remaining $5,000 to future tax years.

Carryforward rules

Unused capital losses (the amount above the annual $3,000 limit) may be carried forward indefinitely to future tax years. Each future year you apply losses to offset gains and up to $3,000 of ordinary income until the loss is exhausted.

Carried-forward losses retain their character (short-term or long-term) when applied in future netting calculations, which can affect how they offset gains in later years.

Reporting stock losses on tax returns

Forms and reporting (Form 8949, Schedule D)

Sales of securities are generally reported on Form 8949 and summarized on Schedule D of Form 1040. Form 8949 captures the details of each sale (date acquired, date sold, proceeds, cost basis, and adjustments). Schedule D aggregates results and computes the overall capital gain or loss for the year.

When you ask "can stock losses be written off," the practical step is: prepare Form 8949 with each transaction, reconcile to your broker statements, and transfer totals to Schedule D to compute the deductible amount.

Brokerage tax statements (Form 1099-B) and reconciliation

Brokerage firms issue Form 1099-B that lists sales proceeds and often reports whether the broker believes cost basis is known. Brokers increasingly report adjusted basis information to the IRS, but taxpayers must still verify the numbers.

Reconcile 1099-B entries with your own trade confirmations and cost records because brokers can report incorrect or incomplete basis in some cases (for older purchases or corporate actions). Mistakes in basis are a common source of IRS notices.

Cost basis, adjusted basis and calculation of loss

Loss on a sale = Sale proceeds (net of commissions/fees) − Adjusted cost basis. Adjusted cost basis generally equals your purchase price plus transaction costs and certain adjustments (e.g., wash sale additions, return of capital adjustments). Keep records of purchase confirmations and any corporate action notices to compute basis accurately.

Because the question "can stock losses be written off" depends on accurate numbers, careful tracking of cost basis and commissions is essential.

Tax-loss harvesting and practical strategies

Tax-loss harvesting defined

Tax-loss harvesting is the deliberate sale of securities at a loss to realize tax benefits, typically to offset gains or generate a deductible loss that can reduce taxable income (subject to the $3,000 limit). After selling, investors often replace the sold position with a similar but not "substantially identical" investment to maintain market exposure.

This strategy answers the real-world question of "can stock losses be written off" by illustrating how investors realize and use losses as part of tax planning.

Timing and year-end considerations

To count for a given tax year, a sale must settle or at least be executed before December 31 of that year. Plan harvests before year-end for gains occurring earlier in the year.

Be mindful of the 30-day wash-sale window (described below) when planning replacements. Many investors perform systematic harvesting through the year to manage risk and tax exposure rather than waiting until December.

Pros and cons

Pros:

• Offsets realized gains and can reduce current taxes.
• Creates tax-loss carryforwards that can be used in future years.
• Allows portfolio rebalancing while managing the tax impact.

Cons:

• Transaction costs and bid/ask spreads can reduce net benefit.
• Potential market-timing risk between sale and replacement.
• Tracking basis and wash-sale implications becomes more complex.

Tax-loss harvesting is a common tactic used to answer "can stock losses be written off" in a tax-efficient portfolio management process.

The wash sale rule

What the wash sale rule prohibits

The wash sale rule disallows a loss deduction if you buy the same or a "substantially identical" security within 30 days before or after the sale that produced the loss. The rule is designed to prevent investors from selling a position simply to create a tax loss while effectively maintaining the same economic exposure.

If a sale is a wash sale, the disallowed loss is not lost forever; it is added to the basis of the repurchased security, deferring the loss until that position is ultimately sold in a transaction that does not trigger a wash sale.

Examples and common pitfalls

• Selling 100 shares of XYZ at a loss on November 20 and repurchasing 100 shares of XYZ on December 5 creates a wash sale (within 30 days). The loss is disallowed and added to the basis of the December 5 purchase.

• Buying an ETF that tracks the same index immediately after selling a different ETF that tracks the same index could create a wash-sale issue if the ETFs are deemed "substantially identical". Determination can be nuanced.

• Buying options, calls, or other derivatives that provide substantially identical exposure in the 30-day window may also trigger a wash sale.

How to avoid or work around wash-sale pitfalls

Common approaches:

• Wait 31 days before repurchasing the same security.
• Replace the sold security with a different but not substantially identical investment (for example, a different ETF with similar exposure but not substantially identical structure). When using crypto or emerging asset classes, understand that IRS guidance on what is "substantially identical" may be limited.
• Use tax-aware replacement strategies and maintain careful records if multiple accounts or family accounts transact around the same time; wash sale rules can apply across accounts and even with certain related-party transactions in some cases.

Because wash-sale complexity often determines whether you can write off a given loss, planning is central when asking "can stock losses be written off."

Special cases and exceptions

Worthless securities and total loss claims

If a security becomes worthless during the year, you may be able to claim it as a capital loss even without a sale, but the IRS treats worthless securities claims as occurring on the last day of the tax year, and documentation of worthlessness is important.

A worthless security claim is different from a simple sale at a loss and has unique timing and proof requirements.

Bankrupt companies and worthless stock treatment

When a company enters bankruptcy, losses may not be realized immediately. If shares become effectively valueless, taxpayers may claim a worthless security deduction, but the timing and required evidence can be complex. Consult guidance if your investment enters bankruptcy before assuming you can claim a total loss.

Losses in tax-advantaged accounts (IRAs, 401(k)s)

Losses realized inside tax-advantaged retirement accounts do not create deductible capital losses for the account owner. Those accounts receive tax deferral or tax-exempt treatment, and their internal gains and losses typically do not affect your annual Form 1040 capital gain/loss calculations.

Inherited assets and basis step-up

Inherited securities often receive a stepped-up basis to the fair market value on the decedent’s date of death (or alternate valuation date where applicable). That step-up can eliminate built-in losses that existed prior to inheritance, meaning an inherited asset sold at or near the stepped-up value may not produce a deductible loss.

Because basis rules for inherited assets differ, the simple question "can stock losses be written off" needs the nuance of how the basis was determined.

Application to cryptocurrencies and other property

Treatment of crypto as property and wash-sale uncertainty

For federal tax purposes, the IRS treats cryptocurrency as property. That usually means gains and losses on crypto are capital in nature when held as an investment. However, the traditional wash-sale rule explicitly references "stocks or securities," and its application to crypto has been uncertain.

As of the most commonly available guidance through mid-2024, the wash-sale rule has not been clearly applied to cryptocurrencies. Because rules can change and enforcement may evolve, taxpayers asking "can stock losses be written off" should treat crypto losses as taxable events under property rules and consult current IRS guidance or a tax professional about wash-sale applicability.

When dealing with Web3 assets, consider using Bitget Wallet for custody and transaction tracking. Bitget tools can help you export transaction histories for reporting while offering secure custody and portfolio views that simplify bookkeeping when evaluating losses.

Other non-stock assets (collectibles, real estate)

Certain asset classes have special rules. Collectibles can be subject to different tax rates on gains, and real estate may involve depreciation recapture or section 1231 treatment. Those special rules affect whether and how losses are recognized and carried.

If you hold non-stock assets, do not assume the same treatment that applies to publicly traded securities automatically applies.

Interaction with other taxes and surtaxes

Net Investment Income Tax (NIIT), state tax considerations, AMT

Capital gains and losses can interact with other taxes. For higher-income taxpayers, the Net Investment Income Tax (NIIT) can apply to net investment income including capital gains. State tax treatment of capital losses varies — some states follow federal rules closely, others limit or disallow certain deductions.

Alternative Minimum Tax (AMT) considerations are less commonly triggered by straightforward capital loss claims, but complex situations (e.g., preference items or incentive stock option adjustments) can require broader tax planning.

Because state and surtax rules differ, the federal-focused answer to "can stock losses be written off" must be supplemented by state-level research for complete planning.

Practical steps to claim and track losses

Step-by-step workflow

1. Calculate realized loss: For each sale, compute proceeds minus adjusted cost basis (include commissions/fees and basis adjustments).
2. Gather 1099-B forms: Collect year-end broker statements (Form 1099-B) and any confirmations for the tax year.
3. Reconcile: Compare broker-reported basis and proceeds with your records to identify discrepancies.
4. Prepare Form 8949: List each transaction with appropriate codes for adjustments (e.g., wash sale additions).
5. Summarize on Schedule D: Aggregate short-term and long-term totals and compute net capital gain or loss.
6. Apply $3,000 limit: If net loss remains, apply up to $3,000 against ordinary income and carry forward the remainder.
7. Track carryforwards: Keep a running total of unused losses to apply in future years; maintain this in your personal tax records.

Recordkeeping and documentation

Retain trade confirmations, brokerage year-end statements, cost-basis worksheets, and documentation for corporate actions. Keep records supporting any wash sale adjustments and proof of purchases and sales. Good records are essential if the IRS asks for substantiation.

If you use automated portfolio tools or a dedicated trading platform, ensure you can export transaction history in a format that supports Form 8949 preparation.

Bitget’s trade history exports and Bitget Wallet transaction records can be helpful when assembling documentation for reporting realized losses and preparing Form 8949.

Common mistakes, limitations, and when to seek professional help

Frequent errors

• Failing to account for wash-sale adjustments across accounts.
• Using incorrect cost basis (common with inherited shares, corporate actions, or purchases before broker basis reporting was required).
• Forgetting to report sales or mismatching broker 1099-B numbers.

These mistakes often lead to IRS notices or the need for amended returns.

Complex scenarios

Sizable or complicated loss situations (large portfolios, corporate reorganizations, options, short sales, Section 1250 property, or like-kind exchange questions) often require specialized tax knowledge. The interaction of these items with the wash-sale rule, basis calculations, and carryforward mechanics can be intricate.

When to consult a tax advisor

If you ask "can stock losses be written off" for simple retail sales, the answer is usually straightforward. If you face multiple accounts, cross-account sales near the wash-sale window, large losses, bankruptcies, inherited property, or uncertain crypto rules, consult a CPA or tax attorney to avoid costly mistakes.

Remember: nothing in this article is individual tax advice. For personalized guidance, engage a qualified tax professional.

Example calculations

Example 1 — Netting and deduction:

• Short-term gains: $4,000
• Short-term losses: $6,000
• Long-term gains: $2,000
• Long-term losses: $1,000

Net short-term: $6,000 loss − $4,000 gain = $2,000 net short-term loss. Net long-term: $1,000 loss − $2,000 gain = $1,000 net long-term gain.

Offset net categories: $2,000 short-term loss − $1,000 long-term gain = $1,000 net short-term loss remaining.

Because you have no overall net capital gain, you may deduct up to $3,000 against ordinary income. Here, you would deduct $1,000 in the current year. If the net loss exceeded $3,000, you would deduct $3,000 and carry forward the remainder.

This simple calculation shows how the mechanics determine whether and how "can stock losses be written off." Repeating the precise phrase helps emphasize the tax outcome.

References and further reading

• As of June 2024, according to Investopedia, realized capital losses can offset capital gains and up to $3,000 of ordinary income; unused losses carry forward. (Investopedia provides comprehensive how-to guidance on maximizing tax savings by deducting stock losses.)

• TurboTax and IRS instructions for Forms 8949 and Schedule D explain the procedural steps to report sales and compute allowable deductions.

• Bankrate and Fidelity have accessible articles and overviews on tax-loss harvesting strategies and the interaction with wash-sale rules.

• Nolo and SmartAsset describe practical steps for claiming worthless securities and the rules for carrying forward losses.

(Reporting dates and article updates vary; check the latest IRS publications and current-year instructions for Forms 8949 and Schedule D.)

Notes and caveats

Tax laws and IRS guidance change. This guide summarizes typical U.S. federal rules about whether "can stock losses be written off" as explained in widely used tax references but does not substitute for professional tax advice. For personalized guidance, consult a qualified tax professional or CPA and review the latest IRS guidance.

Practical checklist: how to act this tax year

• Review realized sales and calculate realized losses and gains.
• Gather all Form 1099-B and trade confirmations.
• Reconcile broker basis with your records; correct errors early.
• Watch the 30-day wash-sale window when planning repurchases.
• Decide whether to harvest losses before year-end to offset gains.
• Use export tools (for example, Bitget trade history and Bitget Wallet exports) to simplify reporting.
• File Form 8949 and Schedule D with accurate adjusted basis and wash-sale adjustments.
• Track carryforwards for future use.

If you want a platform that helps with trade exports and wallet-level transaction histories to support accurate reporting and easier bookkeeping, consider Bitget exchange and Bitget Wallet as part of your workflow for both centralized and Web3 holdings.

Further explore Bitget features for secure custody, trade history export, and portfolio tracking to simplify preparing records that answer the question "can stock losses be written off" for both traditional securities and digital assets.

If you’d like, I can expand any section with a numeric example across multiple years showing carryforward mechanics, create a printable year-end harvest checklist, or draft sample Form 8949 entries using anonymized transaction data to illustrate how wash-sale adjustments are recorded.