Can You Write Off Your Stock Losses?

A practical, beginner-friendly guide explaining when and how realized stock losses can be deducted on U.S. federal taxes, wash sale limits, reporting steps (Form 8949 / Schedule D), tax-loss harves...

2026-01-13 00:43:00

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Can You Write Off Your Stock Losses?

If you ask "can you write off your stock losses" on your U.S. tax return, the short answer is: yes — but only for realized losses in taxable accounts and subject to rules like netting order, the $3,000 limit against ordinary income, carryforwards, and wash sale restrictions. This guide explains those rules in plain language, walks through reporting steps, covers special situations (worthless securities, retirement accounts, mutual funds, and cryptocurrency), and points to authoritative resources so you can take the next step with confidence.

Note on timing and official guidance: As of January 21, 2026, the IRS continues to treat cryptocurrency as property for federal tax purposes (IRS Notice 2014-21 and subsequent guidance). For the latest authoritative changes, always consult current IRS publications or a qualified tax advisor.

Summary

Brief answer and scope

Short answer to "can you write off your stock losses": Realized capital losses on stocks held in taxable brokerage accounts are generally deductible to offset capital gains, and up to $3,000 of net capital losses can be used to reduce ordinary income per tax year for most filers ($1,500 if married filing separately). Unused losses carry forward indefinitely until fully used.
Scope of this article: U.S. federal tax treatment for individuals and common special situations (wash sales, account types, holding period distinctions, mutual funds/ETF reinvestment, worthless securities, and cryptocurrency). State tax treatments and international rules vary and are discussed at a high level.
Practical takeaway: If you wonder "can you write off your stock losses" for tax planning, focus on whether losses are realized, whether wash-sale rules apply, and how to report transactions correctly on Form 8949 and Schedule D.

Key definitions

Capital loss vs. capital gain

Capital gain: The profit when you sell an asset for more than your adjusted basis (typically purchase price plus certain adjustments). Capital gains are taxable and classified as short-term or long-term.
Capital loss: The loss when you sell an asset for less than your adjusted basis. Only realized losses — i.e., losses that occur when you actually sell the stock or it is otherwise disposed of — count for tax purposes. Paper losses (unrealized declines in value while you still hold shares) are not deductible.

Short-term vs. long-term

Holding-period distinction: A short-term gain or loss arises when you sell an asset you held for one year or less. A long-term gain or loss arises when you sell an asset you held for more than one year.
Why it matters: Short-term gains are taxed at ordinary income tax rates, while long-term gains typically qualify for lower long-term capital gains rates. When computing net capital gain or loss, losses and gains are first netted within their holding-period categories (short-term vs. long-term) before cross-netting.

How stock losses reduce taxes

Offsetting capital gains

Netting order: When you have multiple sales in a tax year, the IRS requires a stepwise netting process:
1. Net short-term gains and short-term losses to produce a net short-term result.
2. Net long-term gains and long-term losses to produce a net long-term result.
3. If one side is a net gain and the other a net loss, they are then offset against each other to produce an overall net capital gain or loss.
Practical implication: A short-term loss offsets short-term gains first (useful because short-term gains face higher tax rates), then any remaining short-term loss can offset long-term gains.

$3,000 ordinary income offset and carryforwards

Annual limit: If your combined net result is a net capital loss (i.e., losses exceed gains after netting), you may deduct up to $3,000 of that loss against ordinary income on your federal tax return in that year ($1,500 if married filing separately).
Carryforward: Any unused capital loss is carried forward to future tax years indefinitely. Each subsequent year you again apply losses to capital gains and up to $3,000 of ordinary income, repeating until the loss pool is exhausted.
Example: If you have a $10,000 net capital loss in 2025 and no capital gains that year, you can reduce up to $3,000 of ordinary income on your 2025 return and carry forward $7,000 to 2026.

Reporting your losses

Forms and schedules

Form 8949: Most taxpayers report each individual sale of stock on Form 8949 (Sales and Other Dispositions of Capital Assets), listing sale date, acquisition date, gross proceeds, cost basis, adjustments, and the resulting gain or loss. Each transaction is marked to indicate whether the basis was reported to the IRS by the broker.
Schedule D (Form 1040): Totals from Form 8949 flow to Schedule D, which shows the net short-term and net long-term results, the application of any capital loss carryforwards, and the final capital gain or loss amount that transfers to Form 1040.
Broker reporting: Brokers typically send a Form 1099-B that summarizes proceeds and whether basis was reported. You still must reconcile and report accuracy on Form 8949.

Documentation

Keep broker statements and trade confirmations: These documents establish dates, proceeds, cost basis, commissions, and any corporate actions affecting basis.
Basis adjustments: Corporate actions (stock splits, reverse splits), return of capital, reinvested dividends (DRIP), and commission fees can affect adjusted basis. Accurately tracking basis reduces audit risk and ensures correct loss amounts.
Record retention: Maintain records for multiple years — the IRS generally allows audit assessments for three years, but better recordkeeping for basis and carryforwards helps defend positions if needed.

Wash sale rule

Rule summary

What it is: The wash sale rule disallows a capital loss if you buy the same or a "substantially identical" security within 30 days before or after the sale that generated the loss. If disallowed, the loss is not gone forever: it is added to the basis of the repurchased shares, deferring the loss until the replacement is sold (subject to further wash-sale rules).
61-day window: The 30-day pre-sale and post-sale windows together mean a 61-day period centered on the sale date matters when determining wash sales.

Practical implications and avoidance

Typical avoidance: Wait at least 31 days after selling at a loss before repurchasing the same security, or buy a clearly different security that is not substantially identical. For many investors, waiting 31 days or using a different ETF/stock that tracks the same sector but is not substantially identical is a practical approach.
Mutual funds and ETFs: Automatic dividend reinvestment can trigger wash-sale issues because the reinvested shares could be treated as a purchase within the 30-day window. Brokers usually report wash-sale adjustments on Form 1099-B when they have sufficient information.
Basis handling: If a loss is disallowed by the wash-sale rule, the disallowed amount increases the basis of the repurchased shares, reducing taxable gain (or increasing loss) on a future sale when the repurchased shares are sold.
Complex scenarios: Multiple lots, partial repurchases, and transfers across accounts (including IRAs) can create complicated wash-sale interactions. For example, selling a stock at a loss in a taxable account and buying the same stock inside an IRA within the 30‑day window will cause the loss to be disallowed and the basis adjustment rules differ — often resulting in permanent disallowance of that loss.

Tax‑loss harvesting

Strategy overview

What it is: Tax-loss harvesting is the intentional sale of investments at a loss to realize capital losses and use them to offset capital gains or to create a loss carryforward for future tax benefit.
Staying invested: Investors who want to remain invested in the same economic exposure often replace sold securities with similar but not substantially identical securities to avoid wash-sale rules while preserving market exposure.

Tradeoffs and timing

Wash sale risk: Be deliberate about replacement securities and timing to avoid wash-sale disallowances. A 31-day wait is the simplest approach if you want to rebuy the same security.
Transaction costs and portfolio drift: Selling to harvest losses can incur commissions or bid-ask spread costs and can change portfolio allocations. Consider rebalancing and transaction costs before harvesting.
Holding-period effects: Realizing losses may reset the holding period of replacement securities, potentially converting a future long-term gain into a short-term gain if you repurchase the same or similar asset and sell it within a year.
Behavioral and investment risks: Harvesting losses for tax reasons should not replace sound investment decisions. Focus first on investment strategy; then check if tax-loss harvesting makes sense within that strategy.

Special situations

Worthless securities

Treated as a sale: If a stock becomes completely worthless during the tax year, the IRS treats the security as sold on the last day of the tax year for tax reporting purposes. You may claim a capital loss equal to your adjusted basis.
Documentation: You should keep documentation supporting worthlessness (bankruptcy filings, liquidation notices, and other evidence). If worthlessness is later reversed or partial recovery occurs, you may need to correct prior returns.
Amended returns: If you discover worthlessness in a later year and can show the security was worthless in an earlier tax year, you may be eligible to file an amended return to claim the loss in the correct year.

Tax‑advantaged accounts (IRAs, 401(k)s)

General rule: Gains and losses inside tax-deferred retirement accounts (traditional IRAs, 401(k)s) or tax-exempt accounts (Roth IRAs) do not produce deductible capital losses on your personal tax return. Transactions inside these accounts do not generate deductible losses.
Transfers and wash-sale traps: Selling at a loss in a taxable account and buying the same security in an IRA within the wash-sale window can permanently disallow the loss. Avoid repurchasing in an IRA within 30 days if you intend to claim the loss.

Mutual funds, ETFs and distributions

Capital gain distributions: Mutual funds and ETFs may distribute realized capital gains to shareholders. These distributions are taxable to the shareholder even if reinvested.
Harvesting vs distributions: Realized losses in your account can offset capital gain distributions in the same tax year, reducing tax on those distributions.
Reinvestment and wash sales: Automatic reinvestment of dividends or distributions can complicate wash-sale rules. If you sell shares at a loss but the fund automatically reinvests a distribution, that reinvestment is a purchase that could trigger a wash-sale disallowance.

Bankruptcy and corporate worthlessness

Worthlessness vs residual value: Bankruptcy and liquidation do not always mean total worthlessness. Some creditors or equity holders may receive partial payments, or revived value could appear. Exercise caution before claiming worthlessness; maintain documentation.
Amended returns possible: If you later determine a security was worthless in an earlier year, you may be able to amend that year's tax return to claim the loss, within the statute of limitations and based on documentation.

Cryptocurrency and other non‑securities

General position

IRS treatment: For U.S. federal tax purposes, the IRS treats cryptocurrencies as property, not currency. This means capital gain and loss rules generally apply to cryptocurrency transactions held in taxable accounts: realized gains are taxable; realized losses may be deductible following capital loss rules.

Wash sale nuance and regulatory uncertainty

Historical scope of wash-sale rule: The wash sale rule historically applied to "stocks and securities," and its direct application to cryptocurrencies has been a matter of legal and administrative discussion because the statutory language does not clearly include digital assets.
As of January 21, 2026: The IRS continues to treat crypto as property (IRS Notice 2014-21). However, whether wash-sale rules apply to cryptocurrency remains uncertain and has been the subject of practitioner debate and proposed legislation. Taxpayers should monitor IRS guidance and consult a tax professional for crypto-specific treatment.
Practical advice: If you hold significant crypto positions and are considering tax-loss harvesting, document trades carefully, consider conservative approaches to avoid potential wash-sale-like issues, and consult a qualified tax professional.

State tax and other variations

State differences: State tax treatment of capital losses and carryforwards varies. Many states conform to federal rules, but not all. Some states have different carryforward limits or disallow certain offsets.
Check state guidance: Always check your state's department of revenue or tax agency guidance (or consult a tax professional) to understand state-specific rules.

When to consult a tax professional

Situations that warrant professional advice

Large or complex losses: If you have unusually large realized losses, complex basis histories, or multiple lots spanning many years, a tax professional can help optimize reporting and defend positions.
Wash-sale complexities: Multiple lot sales, replacement purchases, or trades across multiple accounts (including IRAs) create complicated wash-sale scenarios that benefit from professional review.
Cryptocurrency holdings: Given regulatory uncertainty and evolving guidance, tax professionals with crypto experience can help apply current rules and document positions.
Multi-jurisdiction issues: If you have foreign accounts, nonresident status, or trades across multiple tax jurisdictions, consult an expert.
Worthlessness determinations: Determining when a security is truly worthless can be legally complex. A tax advisor can help document and position an amended return if appropriate.

Primary authoritative resources

Recommended references (check for the latest versions)

IRS Topic No. 409, "Capital Gains and Losses" — overview of federal rules on gains, losses, netting, and reporting.
IRS Publication 544, "Sales and Other Dispositions of Assets" — detailed guidance on dispositions, basis, and related tax rules.
Instructions for Form 8949 and Schedule D (Form 1040) — how to report sales of capital assets.
IRS Notice 2014-21 — official IRS guidance treating virtual currency as property for federal tax purposes.
Broker cost-basis and 1099-B statements — your broker’s documentation and reporting will often drive the completion of Form 8949 and Schedule D.
State department of revenue publications — for state-specific conformity and differences.

(For the latest legal updates, regulations, or tax law changes, consult the IRS website or a qualified tax professional.)

Endnotes / Further reading

How to compute adjusted basis (including DRIP, stock splits, returns of capital).
Form 8949 and Schedule D instructions (examples and sample completed forms).
Wash sale examples with multiple lots and replacement purchases.
Tax-loss harvesting case studies and trade-offs.
Cryptocurrency tax guidance and recent IRS notices.

Further actions

If you concluded from reading "can you write off your stock losses" that you have reportable realized losses this tax year, gather your broker statements and Form 1099-B reports, and consider using tax-preparation software or a tax advisor to complete Form 8949 and Schedule D accurately.
If you trade crypto and intend to harvest losses, document transactions carefully and consider Bitget Wallet for managing private keys and tracking on-chain activity. Explore Bitget features for secure custody and recordkeeping.

Additional practical examples and FAQs

Q: "Can I deduct a loss if I still own the stock?" A: No. Only realized losses — those triggered by an actual sale, exchange, or disposal — are deductible. If the stock has declined but you still hold it, that is an unrealized loss and not deductible.

Q: "If I sell at a loss and immediately buy the same stock back the same day, can I deduct the loss?" A: No. That would generally trigger the wash sale rule because you repurchased the same (or substantially identical) security within the 30‑day window, disallowing the immediate loss.

Q: "How does a broker’s Form 1099‑B affect reporting?" A: Brokers often report proceeds and whether they provided basis information to the IRS. You must reconcile Form 1099‑B to your records and list each sale on Form 8949 if required; totals then flow to Schedule D.

Q: "Will a loss in a taxable account offset a gain in my IRA?" A: No. Gains/losses inside retirement accounts are separate from taxable accounts and generally do not interact for tax deduction purposes.

Example walkthrough: Netting and the $3,000 limit

Suppose you have $8,000 in short-term gains, $2,000 in long-term gains, $5,000 in short-term losses, and $10,000 in long-term losses for the year.
Net short-term: $8,000 gain − $5,000 loss = $3,000 short-term gain.
Net long-term: $2,000 gain − $10,000 loss = $8,000 long-term loss.
Cross-net: $3,000 short-term gain − $8,000 long-term loss = $5,000 net long-term loss.
Apply annual ordinary-income offset: You may deduct up to $3,000 of that net loss against ordinary income, carrying the remaining $2,000 forward to the next year.

Recordkeeping checklist

Trade confirmations and account statements for all sales and purchases.
Broker Form 1099‑B and annual summary statements.
Records of reinvested dividends and corporate actions.
Dates of acquisition and sale for each lot.
Documentation related to worthlessness (bankruptcy filings, liquidation notices).

Practical tips for investors

Track lots: Use specific identification when selling partial holdings to control which lot is sold and its corresponding tax effect.
Harvest strategically: Use tax-loss harvesting as a complement to long-term investment strategy, not a replacement for it.
Avoid preventable wash sales: If you intend to claim a loss, avoid repurchasing the same or substantially identical security within 31 days.
Use broker tools: Many brokers provide lot-level basis reporting and help identify potentially disallowed wash sales — review and reconcile their reporting.