how to file stock losses on taxes

This comprehensive guide explains how to file stock losses on taxes in the United States: which losses are deductible, how to calculate basis and holding periods, the forms to use (Form 8949 → Sche...

2025-11-06 16:00:00

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How to File Stock Losses on Taxes (United States)

This guide explains how to file stock losses on taxes for U.S. federal individual income tax purposes. If you sold stocks, ETFs, or similar securities at a loss during the year, you’ll learn which losses are deductible, how to calculate adjusted basis and holding period, what IRS forms to file (Form 8949 and Schedule D with Form 1040), limits and carryforwards, wash‑sale consequences, and practical tax‑loss harvesting strategies. This article is intended to be beginner‑friendly while reflecting current IRS filing practice.

As of June 2024, per IRS Topic No. 409 and the Form 8949/Schedule D instructions, realized capital losses on stocks are reportable on Form 8949 and summarized on Schedule D of Form 1040. As of March 2023, the IRS also updated instructions to clarify reporting of digital assets and certain transaction codes; consult the latest Form 8949 instructions for code details.

Note: This article focuses on U.S. federal individual income tax treatment and does not replace professional advice. If you have complex situations—large losses, trader status, worthless securities claims, or cross‑border issues—consult a qualified tax professional and bring your transaction records.

Key concepts and definitions

how to file stock losses on taxes starts with understanding foundational tax concepts. Below are the essential definitions.

Realized vs. unrealized losses: Only realized losses—losses that occur when you sell or otherwise dispose of a security—are deductible. A drop in market value that you haven’t sold is unrealized and not deductible until you dispose of the asset. When you sell at a loss, that is a realized loss you may report.
Capital asset definition and securities: For most individual investors, stocks, bonds, ETFs, and similar marketable securities are capital assets. Gains or losses from their sale are capital gains or losses unless a special rule applies.
Short‑term vs. long‑term losses: The holding period determines classification. If you held the stock for one year or less before sale, the loss is short‑term; if you held it more than one year, it’s long‑term. Short‑term and long‑term items are netted separately for tax computation, which affects tax rates and offsets.

Determining your cost basis and adjusted basis

Accurate basis calculation is critical to know how much loss to report when you sell a stock. Brokers often report basis information on Form 1099‑B, but you must confirm accuracy.

Cost basis components: The basic cost basis is what you paid for the shares, including commissions and fees. Adjustments include reinvested dividends (e.g., DRIP shares), return of capital adjustments, stock splits (which change per‑share basis), and corporate actions. If you inherited stock, special basis rules (step‑up to fair market value) apply.
Methods and documentation: Common cost‑basis methods are FIFO (first in, first out) and specific identification. If you use specific identification to select which lots were sold (to control short‑term vs. long‑term characterization), you must be able to substantiate the selection. Brokers are required to report basis for many securities on Form 1099‑B, but confirm that your statements match your records.

Keep trade confirmations, year‑end brokerage statements, and any records of corporate events. These documents support the basis you report and guard against IRS inquiries.

Calculating the capital loss amount

How to compute your loss for a sale:

Sale proceeds: The gross amount you received from the sale less selling commissions or fees.
Adjusted basis: Purchase price plus purchase costs and any required adjustments (see above).
Loss amount: Adjusted basis minus sale proceeds (when basis > proceeds). Report the loss for each transaction.

When you sell only part of a lot, calculate on a per‑lot basis. If you sold multiple lots at different prices or acquisition dates, compute the gain or loss per lot, classify each as short‑ or long‑term based on its holding period, and report each item on Form 8949 as required.

Example — short examples:

Short‑term loss: You bought 100 shares at $50 on May 1 and sold them at $40 on November 1 of the same year. Basis = $5,000; proceeds = $4,000. Loss = $1,000 short‑term.
Long‑term loss: You bought 100 shares at $80 two years ago and sold them at $60. Basis = $8,000; proceeds = $6,000. Loss = $2,000 long‑term.

Forms and where to report stock losses

how to file stock losses on taxes involves completing specific IRS forms in sequence.

Form 8949 — Sales and Other Dispositions of Capital Assets: Report individual transactions that produced gains or losses. Use Form 8949 to list each sale, the acquisition and sale dates, cost basis, proceeds, adjustment codes (e.g., wash‑sale adjustments), and the resulting gain or loss. Transactions reported with basis shown on Form 1099‑B usually go in Part I (short‑term) or Part II (long‑term) and may or may not require entries on Form 8949 depending on the box checked on Form 1099‑B; consult instructions.
Schedule D (Form 1040) — Capital Gains and Losses: After listing transactions on Form 8949, transfer the totals to Schedule D. Schedule D summarizes totals for short‑term and long‑term gains and losses, performs the netting sequence (short‑term net vs. long‑term net), applies the $3,000 ordinary income offset if applicable, and computes carryforwards.
Form 1040: The net capital gain or loss computed on Schedule D flows to Form 1040 and affects taxable income. If you have a net capital loss, up to $3,000 ($1,500 if married filing separately) can offset ordinary income annually; the remainder carries forward to future years.
Other related forms: If you claim losses in special contexts, other forms may apply. For example, Form 4797 is used for certain business securities or mark‑to‑market trader elections (Section 475). Form 4684 covers casualty and theft losses (not typical for routine stock sales). Form 8960 (Net Investment Income Tax) can apply for NIIT computations if your net investment income is above applicable thresholds.

Netting rules, limits, and carryforwards

Understanding the netting sequence is essential when you have multiple transactions.

Netting sequence: First net short‑term gains and losses against each other to create a short‑term net. Separately net long‑term gains and losses to create a long‑term net. Then, if both sides are losses or gains, further netting determines final result. If short‑term net is a loss and long‑term net is a gain (or vice versa), they offset to produce a single net capital gain or net capital loss.
$3,000 ordinary income offset limit: If your combined result is a net capital loss, you may deduct up to $3,000 against ordinary income each tax year ($1,500 if married filing separately). Any remaining net capital loss is carried forward to future years indefinitely until used.
Carryforward mechanics: Maintain a running total of unused capital loss carryforwards. In the next tax year, apply them in the same netting process before using additional new losses; report the carryforward amount on Schedule D per the form instructions.

Practical tip: Keep clear records of carryforwards, as Schedule D worksheets or tax software will ask for the unused loss carried from prior years.

Special rules and exceptions

Several special rules can materially change how losses are treated.

Worthless securities and abandonment: If stock becomes worthless during the year, the IRS generally treats the security as if it were sold on the last day of the tax year for tax‑loss purposes. This lets you claim a capital loss even without a formal sale. Determining worthlessness can be fact‑intensive—bankruptcy filings, company dissolution, or complete loss of value are relevant facts. As of June 2024, IRS FAQs on worthless securities clarify treatment; document the facts supporting worthlessness.
Wash‑sale rule: A loss is disallowed if within the 61‑day window (30 days before sale, day of sale, and 30 days after sale) you acquire substantially identical securities. If the wash‑sale rule applies, the disallowed loss is added to the basis of the newly acquired shares, effectively deferring the loss until that replacement position is disposed of in a non‑wash‑sale transaction. The wash‑sale rule applies across accounts, including IRAs and accounts you control; special complexity arises if you repurchase in a tax‑advantaged account (disallowed permanently).
Mark‑to‑market and trader status: Taxpayers who qualify as traders in securities and who make a Section 475(f) mark‑to‑market election treat gains and losses as ordinary, not capital, and report on Form 4797. Trader status and the election have strict qualification rules and deadlines.
Small business stock rules (Sections 1244/1242): Losses on qualifying small business stock may be fully ordinary (rather than capital) up to limits under Section 1244 if certain conditions are met. Specialized rules apply for losses on foreign corporation stock under Section 1242.

Wash‑sale examples and explanation

Wash‑sale example:

You buy 100 shares of ABC Co. at $50 on January 1. On August 1 you sell those shares at $30, realizing a $2,000 loss ($50–$30 × 100). On August 15 you buy 100 shares of ABC Co. again at $28. Because you repurchased substantially identical securities within 30 days after the sale, the loss is disallowed under the wash‑sale rule. The $2,000 disallowed loss is added to the basis of the replacement shares, making the new basis $2,800 ($28 × 100 + $2,000). When you eventually sell those replacement shares outside the wash‑sale window, the deferred loss can be recognized.

Avoiding wash sales:

Use substantially different securities (e.g., a different company or a diversified ETF that is not substantially identical). Be careful: substituting near‑identical ETFs or options may still be treated as substantially identical.
Wait more than 30 days after sale to repurchase the same security (or wait before selling if you plan to buy more).
Use tax‑efficient alternative funds or a different share class. Always document your trades and dates.

Tax‑loss harvesting and planning strategies

Tax‑loss harvesting is a common strategy to realize losses to offset gains or ordinary income.

What it is: Selling losing positions to realize losses that offset realized gains or up to $3,000 of ordinary income annually, then replacing market exposure with different but not substantially identical securities to maintain portfolio allocation.
Practical strategies: Use similar but not substantially identical securities (for example, a sector ETF with a different index) or temporarily hold cash and repurchase after the 31‑day wash‑sale window. Consider tax‑efficiency when rebalancing and year‑end harvesting; coordinate with capital gain events.
Avoiding wash‑sale traps: If you want to remain invested, replace with a non‑substantially identical instrument or use different share classes that the IRS does not consider substantially identical. If you accidentally trigger a wash sale, document basis adjustments and let tax software manage carryforwards.

Timing considerations:

Year‑end planning: Many investors review their portfolios in December to realize losses to offset gains realized earlier in the year. Be mindful of transaction timing to avoid wash sales.
Long‑term goals vs tax timing: Don’t let tax motives override sound investment decisions. Tax‑loss harvesting should be a tool to improve after‑tax returns, not the primary driver of investment choices.

Digital assets and related reporting notes (brief)

Digital assets (crypto) have distinct reporting rules and interact with securities rules in complex ways.

Form changes and digital asset codes: In recent years, the IRS and Form 8949 instructions have included specific codes and guidance for reporting digital asset transactions. As of March 2023 and through 2024 updates, taxpayers must classify transactions carefully and apply the property rules when crypto is treated as property, not a security.
Applicability: Whether a digital asset is treated like a security or property depends on facts and potentially SEC/IRS guidance. This affects whether stock loss rules or property rules apply. For custody and trading, Bitget Wallet is recommended for storing digital assets if you use Bitget services; consult tax guidance on crypto treatment.

Practical filing steps (step‑by‑step)

Follow these steps when preparing to file stock losses on your U.S. federal tax return.

Step 1: Gather documentation

Collect all broker statements, trade confirmations, and Form 1099‑B(s) for the tax year. Download transaction histories if necessary.
Obtain records of reinvested dividends, corporate actions (splits, mergers), and any documentation for worthless securities or abandonments.

Step 2: Identify realized transactions and classify holding periods and bases

For each sale, determine the acquisition date, sale date, cost basis (adjusted), sale proceeds, and whether the holding period is short‑term or long‑term.
Reconcile broker‑reported basis (1099‑B) with your own records and note any discrepancies.

Step 3: Complete Form 8949

List each transaction on Form 8949 using the appropriate part (short‑term or long‑term) and enter any adjustment codes (wash‑sale code W, basis corrections, etc.) per the instructions.
If broker reporting shows adjusted basis and the 1099‑B indicates that reporting is complete, some transactions may not need to be itemized on Form 8949 but may still need to be checked in the appropriate box—follow Form 8949 instructions carefully.

Step 4: Transfer totals to Schedule D

Use the totals from Form 8949 to complete Schedule D. Apply the netting rules to compute the net capital gain or loss.
Track any unused capital loss to carry forward.

Step 5: Enter results on Form 1040 and other schedules

The net capital gain or deductible loss flows to Form 1040 and may affect taxable income and credits.
Complete additional forms as needed (e.g., Form 8960 for NIIT if applicable).

Recordkeeping and documentation

Good records make tax reporting easier and reduce audit risk.

Records to keep: Trade confirmations, year‑end broker statements, Form 1099‑B, documentation of corporate actions, records supporting worthless security determinations, and worksheets showing basis calculations and wash‑sale adjustments.
Retention period: Keep records for at least three years after filing the return, but retain basis documentation and carryforward worksheets for as long as you hold related assets or until carryforwards are used. For complex situations (e.g., basis adjustments from acquired companies), keep records longer.

Common errors and audit triggers

Avoid these frequent mistakes when you prepare to file stock losses on taxes:

Missing Form 8949 reporting: Failing to report transactions that the IRS may have documentation for (broker 1099‑B) invites mismatch notices.
Failing to report 1099‑B transactions: Reconcile broker‑reported amounts with your return; mismatches can trigger IRS notices.
Mishandling wash‑sales: Not adjusting basis for disallowed losses or ignoring repurchases within the wash period.
Incorrect basis: Especially when DRIPs, corporate actions, or multiple lots exist. Use supporting documents.

How to avoid problems: Reconcile broker 1099‑B totals with your records and supply clear adjustments on Form 8949 as necessary. Use tax software or a preparer experienced with investment reporting.

Amending returns and correcting mistakes

If you discover errors after filing, you may need to amend.

When to amend: Omit a sale, misstate basis, or later obtain corrected 1099‑B information. Use Form 1040‑X to amend and include corrected Form 8949 and Schedule D as applicable.
Statute of limitations: Generally, the IRS has three years from the date filed to assess additional tax, but special rules can extend or shorten periods. For carryforwards and basis disputes, maintain records beyond the standard period as needed.

When to consult a tax professional

Consult a tax professional if you encounter complexity such as:

Large losses or multiple years of carryforwards;
Trader status or a Section 475 mark‑to‑market election in question;
Worthless securities or abandonment claims needing documentation;
Complex wash‑sale webs across multiple accounts;
Crypto or digital asset transactions where security vs. property classification is uncertain;
Cross‑border or estate tax issues that affect basis or reporting.

What to bring to your preparer: All brokerage statements, Form 1099‑B(s), trade confirmations, worksheets showing basis calculations, and documents supporting worthlessness or corporate actions.

Examples and illustrative scenarios

Simple example — offsetting gains:

You have a $5,000 long‑term capital gain and a $3,000 short‑term capital loss. First net the short‑term loss against short‑term gains (none). Then offset the long‑term gain: final taxable gain = $2,000 long‑term, taxed at preferential long‑term rates.

Wash‑sale example (detailed above): shows how a repurchase within 30 days disallows the loss and adds it to the basis of replacement shares.

Worthless security example:

Corporation X liquidates and stock becomes worthless in the tax year. Treat the stock as sold on December 31 for $0; the loss is capital, and holding period is determined by prior acquisition date for classification.

State tax considerations

State tax treatment of capital losses varies. Some states follow federal treatment; others have differences in deduction limits and carryforwards. Check your state tax authority’s rules or consult a preparer for state‑level implications.

Appendix — glossary

Adjusted basis: Cost basis after adding or subtracting certain adjustments (commissions, reinvested dividends, return of capital).
Realized/unrealized: Realized = transaction occurred (sale); unrealized = market fluctuation without sale.
Wash sale: Transaction rule that disallows a loss if substantially identical securities are purchased within 30 days before or after the sale.
Holding period: The time between acquisition date and sale date determining short vs long term.

Final notes and next steps

If you’re wondering how to file stock losses on taxes for this year, start by gathering 1099‑B statements and transaction histories, confirm your cost basis per lot, and use Form 8949 and Schedule D to report realized transactions. For active digital asset users, document whether assets are treated as property or securities and keep careful records. For custody and trading of digital assets, consider Bitget and the Bitget Wallet for consolidated records and secure custody if you use Bitget services.

Want a printable checklist or a sample completed Form 8949 and Schedule D worksheet to match your trades? Contact a qualified tax preparer or use trusted tax software that supports investment reporting and wash‑sale adjustments. For investors choosing a platform for trading or custody, Bitget offers trading services and Bitget Wallet for asset storage and transaction history support.

Further exploration: review IRS Publication 550, the Form 8949 and Schedule D instructions for the filing year, and consult a tax professional for complex situations.

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