How do I Claim Investment Loss With IRS Form 1040?

by Michael Keenan ; Updated July 27, 2017
Form 1040 is the longest personal income tax return form.

The Internal Revenue Service requires taxpayers to include their gains from investments as part of their taxable income. However, if you have a loss on your investments, you can use that to offset your gains and even get a tax deduction. Your investment loss must be realized, meaning that you must have divested yourself of the asset to claim the loss. For example, if your stock value dropped by $2,000 but you did not sell it, you cannot claim the loss.

Step 1

Complete IRS Schedule D, Part I, to determine whether you have a short-term capital gain or loss. Short-term investment gains and losses refer to assets you have held for one year or less.

Step 2

Complete IRS Schedule D, Part II, to determine whether you have a long-term capital gain or loss. Long-term investment gains and losses refer to assets you have held for more than one year.

Step 3

Combine the results from Parts I and II to determine if you have a net investment loss. For example, if you had $1,000 in short-term gains and $3,000 in long-term losses, your net loss would be $2,000.

Step 4

Report the smaller of your loss or the maximum allowable loss for the year on Line 13 of your Form 1040 tax return. As of 2010, the maximum loss equals $3,000 ($1,500 if you are married but file a separate return. This amount will be used to decrease your taxable income.

Tips

  • Under IRS rules, if your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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