can you write off stock losses from previous years

Deducting Stock Losses from Previous Years (Capital Loss Carryovers)

As of June 2024, according to the IRS Topic No. 409 and related guidance, taxpayers who realize capital losses on stocks can generally use unused losses from prior years to reduce taxable gains in later years or deduct up to $3,000 ($1,500 if married filing separately) of ordinary income per year. This article answers the question can you write off stock losses from previous years and explains how to calculate, report, carry forward, and plan around capital loss carryovers.

This guide is written for U.S. federal tax purposes. It’s beginner friendly, cites authoritative sources, includes worked examples and reporting steps (Form 8949 and Schedule D), flags special rules such as the wash-sale rule and worthless securities, and points out where cryptocurrency treatment is uncertain. Where the article mentions custody or wallets, Bitget Wallet is highlighted as a recommended option.

Key concepts and definitions

• Realized vs. unrealized losses: A loss is realized for tax purposes when you sell (or otherwise dispose of) the stock. An unrealized (paper) loss—one that exists only because the market price dropped—is not deductible until you complete a taxable sale or disposition.

• Capital asset: For most investors, stocks are capital assets. Gains or losses on capital assets are reported as capital gains or capital losses.

• Short-term vs. long-term: Holding period matters. A short-term capital loss comes from selling an asset you held one year or less. A long-term capital loss comes from selling an asset you held more than one year. Short-term losses first offset short-term gains; long-term losses first offset long-term gains.

• Adjusted basis: Your adjusted basis in a stock is typically the purchase price plus commissions and fees, adjusted for corporate actions (splits, dividends in kind, returned capital). Basis determines the amount of gain or loss on sale.

• Net capital gain or loss: At year-end you net all capital gains and losses by holding period (short-term vs long-term) and then across categories to compute your overall capital gain or loss for the year.

How capital loss deductions work

• Order of offsetting: Short-term gains are offset by short-term losses first. Long-term gains by long-term losses first. After those nettings, if you have a net loss in one category and a net gain in the other, they offset each other.

• Ordinary income offset limit: If your total net result for the year is a net capital loss, you can deduct up to $3,000 of that net loss against ordinary income ($1,500 if married filing separately) on your Form 1040 each tax year.

• Carryforward of excess losses: Any unused capital loss beyond the $3,000 limit is carried forward indefinitely to future tax years until fully used.

• Carryover application: In subsequent years, a capital loss carryover is applied in the same manner—first offsetting gains by holding period then the $3,000 ordinary-income deduction limit.

(As of June 2024, these mechanics are described in IRS Topic No. 409 and Schedule D instructions.)

Calculating the loss and holding period

• Sale proceeds minus adjusted basis: Capital loss = amount realized (sale proceeds less selling expenses) minus your adjusted basis. If the result is negative, it’s a capital loss.

• Commissions and fees: Include brokerage commissions, transaction fees, and other ordinary selling costs in the computation of amount realized.

• Holding period: The holding period typically begins the day after you acquire the stock and ends on the day you sell it. One-year boundary is strict for short- vs long-term classification.

Capital loss carryover (carryforward)

• What a carryover is: A capital loss carryover is the portion of a prior year’s net capital loss that was not deductible (because of the $3,000 limit) and is carried to the next tax year.

• How the amount is calculated: The carryover is computed on the Capital Loss Carryover Worksheet in the Schedule D instructions. It takes into account the unused short-term and long-term losses separately, plus any disallowed wash-sale amounts.

• How carryovers are used: In the future year, carryovers are applied to offset current-year gains by holding period first, then up to $3,000 against ordinary income if a net loss remains.

• Indefinite duration: Generally, capital loss carryovers do not expire; they continue year to year until used up.

(For official steps and the worksheet, see the IRS Schedule D instructions as of June 2024.)

Reporting the loss on tax returns

• Form 8949: Use Form 8949 to report details for each sale of capital assets—dates acquired and sold, proceeds, cost basis, adjustments (including disallowed wash-sale losses), and gain/loss for each transaction.

• Schedule D (Form 1040): Totals from Form 8949 flow to Schedule D where you net short- and long-term transactions and compute the overall gain or loss.

• Form 1040: The final net gain or deductible loss (after applying the $3,000 limit, if applicable) flows to your Form 1040 tax return.

• Carryover reporting: If you have a capital loss carryover from a prior year, you enter the carryover amount on the current year’s Schedule D (there are specific lines for this) and follow the worksheet steps in the Schedule D instructions.

• Tax preparation software: Most modern tax software automates the entry and application of carryovers if you enter the prior-year Schedule D details or carryover worksheet amounts.

Special rules and limitations

• Wash-sale rule: If you sell a stock at a loss and buy the same or a “substantially identical” security within 30 days before or after the sale, the loss is disallowed for tax purposes and instead added to the basis of the newly acquired shares.

  • The 30-day window includes the day of sale plus 30 days before and after.
  • Disallowed loss increases basis of replacement shares and shifts the timing of the loss deduction until the replacement shares are sold.

• Worthless securities: If a security becomes completely worthless, the IRS treats it as sold on the last business day of the tax year and you may claim a capital loss for that tax year.

• Retirement accounts and tax-advantaged accounts: Losses inside IRAs, 401(k)s, or other retirement/tax-advantaged accounts are generally not deductible and do not produce capital loss carryovers.

• Personal-use property: Losses on personal-use property (non-investment) are not deductible.

• Short-sale and constructive sales: Special rules apply to short sales, options, and constructive sales; those require careful reporting and may affect the timing and character of gains/losses.

Wash-sale nuances and cryptocurrency

• Stocks and securities: The wash-sale rule explicitly applies to “stocks and securities.” The IRS guidance is clear for equities and many securities.

• Cryptocurrencies: As of June 2024, the application of the wash-sale rule to cryptocurrencies is unsettled because the IRS treats most cryptocurrencies as property for tax purposes. Because the statutory wash-sale language references securities, many tax practitioners argue wash-sale may not apply to crypto. Others recommend caution.

  • As of June 2024, major tax guidance for crypto did not expressly extend the wash-sale rule to cryptocurrencies. However, taxpayers are encouraged to consult a tax professional when large crypto positions or frequent trading are involved.

• Practical takeaway: If you trade crypto, keep careful records of purchases and sales and consult a tax advisor about wash-sale treatment for your specific holdings.

Amending prior returns and missed losses

• When to amend: If you omitted a reportable sale or loss in a prior year and that omission materially affects tax, you may generally amend the return using Form 1040-X.

• Statute of limitations: The general three-year statute of limitations for refund claims applies (generally three years from the date you filed the original return or two years from the date you paid the tax, whichever is later). There are exceptions for fraud or substantial understatement.

• When to amend for carryovers: Amending may be worthwhile if adding a missed loss creates a carryover that reduces taxes in a later year or yields an immediate refund.

• Practical steps: Gather trade confirmations, brokerage 1099-Bs, and basis documentation. Prepare the corrected Schedule D and Form 8949 for the year to be amended and submit Form 1040-X with explanations and supporting documents.

Examples and worked calculations

Below are several illustrative examples. These examples assume U.S. federal tax rules as of June 2024 and are for explanation only—your numbers will differ in real life.

Example 1 — Netting within and between holding periods

• Transactions in Year 1:
  • Short-term gains: $5,000
  • Short-term losses: $8,000
  • Long-term gains: $2,000
  • Long-term losses: $1,000

Steps:

1. Net short-term: $5,000 gain offset by $8,000 loss = $3,000 net short-term loss.
2. Net long-term: $2,000 gain offset by $1,000 loss = $1,000 net long-term gain.
3. Net across categories: $3,000 net short-term loss offsets $1,000 net long-term gain → $2,000 net capital loss.
4. Ordinary income offset: You can deduct the $2,000 against ordinary income (under the $3,000 limit).

Result: No carryover.

Example 2 — Using the $3,000 limit and creating a carryover

• Transactions in Year 1:
  • Total net capital loss (after all nettings): $12,000

Steps:

1. You may deduct $3,000 of that loss against ordinary income in Year 1.
2. Remaining loss: $12,000 - $3,000 = $9,000 carryover to Year 2.

• Year 2:
  • If Year 2 has a $4,000 capital gain, the carryover first offsets that $4,000, leaving $5,000 of loss.
  • In Year 2, you can then deduct $3,000 against ordinary income, leaving $2,000 carryover to Year 3.

Result: The original $12,000 loss is used across years until exhausted.

Example 3 — Carryover detailed with holding periods

• Year 1: You have a $10,000 long-term loss and no gains.

  • Deduct $3,000 against ordinary income; $7,000 long-term carryover remains.

• Year 2: You have a $4,000 short-term gain and no long-term gains.

  • Apply the $7,000 long-term carryover: long-term loss offsets long-term gains first (none), then offsets short-term gains.
  • Short-term gain of $4,000 is fully offset by part of the $7,000 long-term carryover → $3,000 long-term carryover remains.
  • You can then deduct $3,000 against ordinary income in Year 2, leaving $0 carryover.

This example shows that carryovers retain the holding-period character but can offset other categories when appropriate.

Interaction with state taxes

• State treatment varies: Many states follow the federal treatment of capital gains and losses, but not all. Some states have different rules for carryovers, limit amounts, or disallow certain deductions.

• Check local law: Always check your state’s tax rules or consult a tax preparer experienced in your state.

Recordkeeping and documentation

• Keep trade confirmations and brokerage statements showing dates, proceeds, and commissions for each transaction.

• Retain year-end brokerage 1099-B forms that summarize sales and report cost basis (where applicable).

• Maintain records of corporate actions, stock splits, returned capital, reinvested dividends, and records of transfers to/from tax-advantaged accounts.

• If you claim a worthless security loss, keep documentation supporting worthlessness (company liquidation statements, exchange delisting notices, or other contemporaneous evidence).

• For wash-sale adjustments, keep purchase and sale dates within the 61-day window (30 days before and after the loss sale) and documentation of any replacement purchases.

• Maintain worksheets for capital loss carryovers (the Schedule D worksheet or software-generated reports) to show the annual carryover calculation.

Good recordkeeping saves time and supports claims if the IRS queries your return.

Planning considerations and strategies

• Tax-loss harvesting: Selling investments with losses to realize tax deductions or carryovers is a common strategy. Harvested losses may offset gains in the same tax year or be carried forward.

• Balance tax and investment goals: Tax-loss harvesting should not override long-term investment strategy. Consider rebuying similar exposure carefully to avoid wash-sale rules.

• Avoid wash-sales: If you plan to repurchase similar securities quickly, be mindful of the 30-day rule. Consider using different but not “substantially identical” securities or waiting 31+ days.

• Use tax-advantaged accounts for long-term holding: If you anticipate future taxable gains, allocate appropriate assets to tax-advantaged accounts while understanding that losses inside such accounts are not deductible.

• Coordinate timing: If you expect large capital gains in a coming year (e.g., from an asset sale), realizing losses beforehand can offset those gains.

• Crypto portfolios: Given the uncertainty around wash-sale treatment for crypto as of June 2024, consult a tax advisor if you perform frequent trades or complicated strategies.

• Bitget Wallet: For custody of crypto and token assets, consider secure wallets such as Bitget Wallet to maintain clear transaction records and private-key ownership. Bitget Wallet helps track on-chain transactions which improves recordkeeping for tax purposes.

Common pitfalls and frequently asked questions

• Can you carry back losses? Generally no: For capital losses you cannot carry losses back to earlier tax years to claim refunds; you carry them forward.

• How long do carryovers last? Indefinitely; they carry forward each year until used.

• Are wash-sales permanent? No; a disallowed loss is added to the basis of replacement shares, meaning the loss is deferred until those replacement shares are sold.

• Are losses on worthless stocks deductible? Yes; if a security is truly worthless you can treat it as sold on the last day of the tax year and claim a capital loss.

• Do wash-sales apply to crypto? As of June 2024, the IRS has not clearly extended wash-sale rules to most cryptocurrencies. Treatment remains unsettled; consult a tax professional for large or complex crypto positions.

• Do losses in IRAs generate deductions? No: losses inside traditional IRAs and Roth IRAs are not deductible on your personal tax return.

• Interaction with AMT and NIIT: Capital gains and losses can affect Alternative Minimum Tax (AMT) calculations or Net Investment Income Tax (NIIT) exposure. Large gains or losses may have different interactions; consult a tax preparer if you face AMT or NIIT concerns.

When to seek professional help

Consult a CPA, EA, or tax attorney when:

• You have large losses or large carryovers that materially affect taxable income.
• Your cost-basis records are incomplete or complex (transfers, inherited shares, corporate reorganizations).
• You trade options, engage in margin transactions, or have short-sales that complicate character and timing.
• You have a large crypto portfolio or frequent crypto trades and need clarity on wash-sale-like issues.
• You need to amend prior returns for missed sales/losses, or you have multi-state tax issues.

A qualified tax professional can help ensure accurate reporting and maximize legitimate tax benefits while minimizing compliance risk.

Worked Schedule D / Form 8949 flow (sample walkthrough)

1. Gather 1099-Bs and trade confirmations from your broker for the tax year.
2. On Form 8949, list each sale with date acquired, date sold, proceeds, cost basis, and any adjustment codes (e.g., for disallowed wash-sales).
3. Transfer totals from Form 8949 to Schedule D’s short-term and long-term sections.
4. On Schedule D compute net short-term and long-term gains or losses.
5. If net capital loss exists, compute how much is deductible against ordinary income (up to $3,000) and the amount of carryover to the next year using the Schedule D worksheet.
6. Enter the deductible amount on Form 1040.

Sample entry (illustrative numbers only):

• Sale A (short-term): Proceeds $2,000; basis $5,000 → loss $3,000
• Sale B (long-term): Proceeds $10,000; basis $12,000 → loss $2,000
• Schedule D shows total short-term loss $3,000, total long-term loss $2,000 → total net capital loss $5,000
• Deduct $3,000 on Form 1040; carryover $2,000 to next year.

References and official guidance

• As of June 2024, IRS Topic No. 409 (Capital Gains and Losses) provides the federal rules on gains, losses, and carryovers.
• As of June 2024, the IRS Schedule D and Form 8949 instructions and Publication references (such as Publication 544 and Publication 550) describe reporting and specific rules.
• As of June 2024, practical guides from Investopedia, Vanguard (on tax-loss harvesting), TurboTax, Bankrate, and TaxSlayer explain workflows, examples, and common pitfalls.

For authoritative tax law, rely on IRS publications and consult a licensed tax professional.

Further practical advice and next steps

• Maintain organized records for all trades and corporate actions.
• If you use crypto trading or custody, prefer solutions that produce clear on-chain transaction history—Bitget Wallet is a recommended option to help keep track of transfers and trades.
• Consider tax-loss harvesting strategies only as part of an overall investment plan.
• If you’re unsure about wash-sale implications or carryover computations, schedule time with a tax professional to review your specific facts.

Explore more about how Bitget products can help you maintain clear custody records and simplify transaction tracking for tax reporting.

Reporting note for timeliness

As of June 2024, according to the IRS Topic No. 409 and Schedule D instructions, the rules summarized above reflect current federal guidance. For any updates after that date, check the latest IRS publications or consult a tax professional.

If you’d like, I can expand the worked examples into a full sample Schedule D/Form 8949 with line-by-line mock entries, provide a downloadable worksheet you can use to compute carryovers, or draft sample Form 1040-X language for amending a return. I can also tailor the examples to illustrate interactions with state tax treatments or crypto holdings tracked in Bitget Wallet.