Can You Write Off Stock Investments? Complete Guide

Can You Write Off Stock Investments?

Can you write off stock investments is a common and practical question for individual investors and traders. In short, you can write off realized capital losses from stock investments to offset capital gains and, within limits, ordinary income. This article explains how that process works in U.S. federal income tax law, important rules that limit or disallow writeoffs, reporting steps, tax planning strategies such as tax-loss harvesting, and related considerations for mutual funds, ETFs, and cryptocurrency. As of 2026-01-21, according to sources including IRS Topic No. 409, TurboTax, Fidelity, and industry guidance, these rules remain the foundation for handling stock investment losses.

This guide helps beginners understand the basics and gives intermediate investors practical examples and recordkeeping recommendations. You will learn when and how can you write off stock investments, what reduces or postpones those deductions, and when to get professional help. We also highlight Bitget tools you may consider for trading and custody when planning taxable investment moves.

Basic concepts

• Capital asset and classification: Stocks and most investment holdings are capital assets for tax purposes. A capital gain or capital loss arises when you sell a capital asset for more or less than its adjusted basis.
• Capital gain vs capital loss: A capital gain occurs when sale proceeds exceed your adjusted basis. A capital loss occurs when sale proceeds are less than your adjusted basis.
• Realized vs unrealized losses: Only realized losses from an actual sale or disposition are deductible on your tax return. Paper losses that exist only because market prices have fallen are unrealized and cannot be written off until you sell or otherwise dispose of the asset.
• Holding period matters: The holding period determines whether a gain or loss is short-term (held one year or less) or long-term (held more than one year). Short-term gains are taxed at ordinary income rates, while long-term gains receive preferential rates. The classification also governs how losses are netted.

How stock losses offset gains and income

The netting process governs how can you write off stock investments and how losses reduce tax:

1. Classify each sale as short-term or long-term based on holding period.
2. Net short-term gains and losses against each other; net long-term gains and losses against each other.
3. If the net short-term and net long-term results have opposite signs, offset one against the other to reach a single net capital gain or net capital loss.
4. If net capital losses exceed net capital gains for the year, you may deduct up to 3,000 dollars of the excess loss against ordinary income per year (1,500 dollars if married filing separately). Any remaining unused loss is carried forward indefinitely to future years.

This netting order is important. For example, short-term losses first reduce short-term gains, which are usually taxed at higher rates. Using loss realizations strategically can therefore provide greater tax relief.

Calculating loss and basis

To determine whether you can write off stock investments, you must correctly calculate adjusted basis and the resulting loss:

• Cost basis typically equals the amount paid to acquire the shares, including commissions and fees. For gift, inheritance, and corporate action situations, special rules adjust basis.
• Adjusted basis includes cost, plus certain adjustments such as reinvested dividends and share splits. Commissions reduce net proceeds on sale but are factored into basis when purchased.
• Loss equals adjusted basis minus sale proceeds (net of selling commissions and fees). If the sale proceeds are lower than adjusted basis, you have a realized capital loss.
• Corporate actions such as stock splits, mergers, spin-offs, or stock dividends can alter basis per share. Always confirm how these events affect your adjusted basis.

Keeping accurate cost basis records prevents errors when determining if and how can you write off stock investments.

Reporting and forms

Correct reporting is essential when you claim deductions for stock losses:

• Brokers issue Form 1099-B to report sales proceeds and cost basis information for the tax year. Compare your broker 1099-B to your own records.
• Form 8949 lists details of each sale, including date acquired, date sold, proceeds, cost basis, wash sale adjustments, and resulting gain or loss. Transactions are reported with appropriate codes when basis is not reported to the IRS by the broker.
• Schedule D of Form 1040 summarizes capital gains and losses after the detailed entries on Form 8949. Netting and the 3,000 dollars limit are applied here.

Reconciling your records to the broker 1099-B and completing Form 8949 correctly helps avoid IRS notices and ensures accurate application of how can you write off stock investments.

Timing and realizing losses

A loss must be realized by the taxpayer before year end to be used on that year s return. That means any sale closing on or before December 31 counts for that tax year. Year-end planning is common: investors review portfolios in November and December to decide whether to sell loss positions to offset gains realized earlier in the year. Remember that market conditions, transaction costs, and your long-term investment plan should factor into any decision to realize losses.

Wash sale rule and substantially identical purchases

One of the most important limits on whether you can write off stock investments is the wash sale rule:

• The wash sale rule disallows a loss on the sale of a security if, within 30 days before or after the sale date, you buy the same or a substantially identical security, or the purchase is made by a spouse or a company you control. The disallowed loss is added to the basis of the newly acquired shares, deferring the loss until a later taxable disposition.
• The 61-day window (30 days before and 30 days after, inclusive) is often described simply as 30 days before or after, but practically it prevents repurchasing the same holding around the sale date.
• Buying replacement exposure using ETFs or mutual funds may trigger wash sale treatment if the replacement is substantially identical. Practical investors often substitute a broadly similar but not substantially identical ETF or fund to maintain market exposure while avoiding a wash sale.
• Wash sale rules apply across accounts and multiple brokers. Trades in IRAs, even if through a different account, can cause a wash sale disallowance for a taxable account. For example, selling a stock at a loss in a taxable account and then buying the same stock inside an IRA within the window can disallow the loss without an easy basis adjustment.

Understanding wash sale rules is central when planning how can you write off stock investments.

Tax-loss harvesting strategies

Tax-loss harvesting is the practice of realizing losses on investments to offset gains and reduce taxable income. Key points:

• Harvest losses when appropriate to offset realized gains in the same year, reduce current tax, or create carryforwards for future use.
• Replace harvested positions with similar but not substantially identical securities to keep market exposure while avoiding wash sales. For example, swap between two ETFs that track similar but not identical indexes.
• Consider timing around mutual fund and ETF distribution dates. If a fund plans a capital gain distribution and you sell shares to harvest a loss, you could still receive a taxable distribution if you hold the fund through the record date.
• Factor in trading costs, bid-ask spreads, and opportunity cost. Tax benefits should be weighed against investment objectives and transaction expenses.
• Managed account tools and broker platforms often provide tax-loss harvesting automation. When selecting such a tool, check feature availability with Bitget trading and custody options for taxable accounts.

Tax-loss harvesting is a useful tactic, but it should not override an investor s long-term plan.

Limitations, exceptions, and special rules

• Retirement accounts: Losses inside tax-advantaged retirement accounts such as IRAs and 401(k)s typically are not deductible. Selling a holding at a loss within an IRA does not create a deductible loss on your personal tax return.
• Miscellaneous investment expenses: Under the Tax Cuts and Jobs Act through 2025, miscellaneous itemized deductions subject to the 2 percent floor, including many investment expenses, are suspended. Investment interest expense remains deductible but is limited to net investment income.
• Dealer or business treatment: Broker-dealers, traders who elect trader tax status, or businesses holding securities as inventory may have different ordinary loss rules. These situations are complex and typically require professional tax advice.
• Worthless securities: If a security becomes completely worthless during the tax year, Section 165 allows a deduction for worthless securities. Determining worthlessness requires careful factual analysis and documentation. In many cases, a worthless security is treated as sold on the last day of the tax year for loss deduction purposes.

These exceptions affect whether and how can you write off stock investments in special contexts.

Carryforwards and multi-year treatment

When your net capital losses exceed the annual deductible limit, you carry forward the unused losses indefinitely:

• Each year, carryforward losses are first applied against capital gains in that year. If a net loss still remains, up to 3,000 dollars may be deducted against ordinary income in that year.
• Carryforwards retain their character as short-term or long-term losses only for certain reporting purposes, but practical tax computation treats the combined carryforward against future gains.
• Keep accurate records of carryforward amounts reported on prior tax returns to ensure correct application in future years.

Understanding carryforwards helps you plan for multi-year tax outcomes when asking can you write off stock investments.

Application to mutual funds, ETFs, and fund distributions

• Capital gain distributions: Mutual funds and some ETFs pass through capital gains to shareholders. These distributions are taxable to shareholders even if they reinvest them. Tax-loss harvesting can be used to offset such distributions if timed correctly.
• Share class and fund structure: Some funds may report taxable distributions that alter your cost basis. Reinvested distributions increase your basis, affecting future gain or loss calculations.
• Timing considerations: Selling a fund share right before a distribution may create a loss that offsets the distribution tax hit, but you must account for ex-dividend and record dates and potential replacement investment to maintain exposure.

Managing fund distributions is part of practical planning when figuring out whether can you write off stock investments.

Cryptocurrency and other non-stock assets

• The IRS treats virtual currency as property for U.S. federal income tax purposes. Capital gain and loss rules generally apply to crypto held in taxable accounts.
• Historically, the wash sale rule has been written for securities, and its direct application to virtual currency has been debated. As of 2026-01-21, there has been legislative and regulatory interest in extending wash sale principles to crypto, but taxpayers should confirm current rules and consult a tax advisor since guidance can change.
• Other assets such as collectibles may have special capital gains rates or limitations.

When including crypto in your portfolio, the same core question of can you write off stock investments extends to crypto and other property, but with asset-specific caveats.

State tax considerations

State tax treatment of capital losses varies. Many states conform to federal rules, but differences exist:

• Some states do not allow the same annual ordinary income offset or have different carryforward periods. Others disallow certain deductions entirely.
• Always check state tax forms and instructions or consult a state tax professional to confirm how can you write off stock investments for state income tax purposes.

Practical examples

Example 1: Net short-term loss offsetting long-term gain

• You sold stock A at a short-term loss of 10,000 dollars.
• You sold stock B at a long-term gain of 7,000 dollars.
• Short-term losses offset short-term gains first. If there are no other short-term gains, the 10,000 dollar short-term loss offsets the 7,000 dollar long-term gain, leaving a net capital loss of 3,000 dollars. You may deduct 3,000 dollars against ordinary income in the current year. No carryforward remains in this example.

Example 2: Exceeding the 3,000 dollar limit and carrying forward

• You have no capital gains this year but realized a total net capital loss of 12,000 dollars.
• You deduct 3,000 dollars against ordinary income this tax year.
• The remaining 9,000 dollars is carried forward to future years, where it will first offset future capital gains and then reduce up to 3,000 dollars per year of ordinary income until used.

Example 3: Wash sale adjustment

• You buy 100 shares of XYZ for 5,000 dollars. Later in the year, you sell those 100 shares for 3,000 dollars, realizing a 2,000 dollar loss.
• Within 30 days before or after the sale, you repurchase 100 shares of XYZ. The 2,000 dollar loss is disallowed under the wash sale rule and is added to the basis of the newly purchased shares, increasing the basis from 3,000 dollars to 5,000 dollars. You defer the loss until the replacement shares are sold in a transaction that does not violate the wash sale rule.

These examples show how can you write off stock investments in common scenarios.

Recordkeeping and documentation

Good records make claiming deductions simpler and reduce IRS audit risk. Keep:

• Trade confirmations and account statements showing dates, quantities, proceeds, commissions, and costs.
• Broker 1099-B forms and any supplemental information brokers provide about cost basis and wash sale adjustments.
• Documentation for corporate actions, donations, gifts, or inheritances that affect basis.
• Notes on wash sale occurrences, especially across multiple accounts or with IRAs.
• Copies of prior year tax returns showing carryforward loss amounts.

Retain records for at least three years after filing, and often longer for carryforwards or complex situations.

When to consult a tax professional

Consult a CPA or tax advisor when:

• You realize large losses or gains that materially affect your tax picture.
• You trade frequently or qualify or seek trader tax status.
• You need to analyze worthless securities or complex corporate actions.
• You have multi-account or cross-account wash sale questions, including interactions with IRAs.
• You have cross-border or state tax complexities.

A qualified tax professional helps ensure you properly determine whether and how can you write off stock investments while complying with reporting rules.

References and further reading

• IRS Topic No. 409 capital gains and losses and related IRS publications provide official rules and examples.
• Tax preparation resources such as TurboTax and brokers like Fidelity provide practical how-to guides and tools for tax-loss harvesting.
• Industry overviews from Bankrate, Investopedia, Charles Schwab, and Tax Adviser discuss strategies and special rules like worthless securities and dealer treatment.

As of 2026-01-21, industry and IRS guidance confirm the key points in this article about how can you write off stock investments.

Additional practical notes and Bitget features

• If you trade on a platform or custody assets, consider services that help track cost basis, provide year-end tax reports, and offer tax-loss harvesting tools. Bitget provides trading and custody solutions and Bitget Wallet for self-custody uses. When planning taxable events, check account reporting features on Bitget and maintain aligned records across wallets and custody accounts.
• Avoid repurchasing the exact same position within the wash sale window. If you want to maintain market exposure after harvesting a loss, consider buying a similar but not substantially identical fund or ETF.

Final guidance and next steps

Can you write off stock investments often depends on the timing of sales, accurate basis records, and compliance with rules like the wash sale provision. For many investors, tax-loss harvesting is a legitimate and useful tactic to reduce taxes, but it should fit within an overall investment plan.

If you are uncertain about specific situations or large transactions, consult a qualified tax professional. To explore trading tools, reporting features, or custody options that can help with tax reporting and loss tracking, consider reviewing Bitget account features and Bitget Wallet for secure management of assets.

Further exploration: review IRS Topic No. 409 and broker tax guides, and consider building a checklist for year-end tax-loss harvesting that includes review of realized gains, wash sale exposure, replacement security choices, and documentation updates.