Can I take losses on my stocks and use the standard deduction? (2024)

By Karin Price Mueller | for

Can I take losses on my stocks and use the standard deduction? (1)

Q. If you elect to take the standard deduction for the 2020 tax year, can you still also deduct financial contributions and losses for selling stocks?

— Learning

A. Determining taxable Income is a three-step process.

The first step is to calculate gross income, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

Gross income is the total of salaries, wages, interest, dividends, pension income and more, he said.

Next, you have to deal with two items that can be positive amounts or negative amounts. These are business income or loss and capital gains or losses, Kiely said.

“If you have your own business or are a partner in a partnership, you add your business income into your gross income,” he said. “If you have a net operating loss you can deduct your loss from your gross income.”

If your business loss is greater than all your other income, you can carry your unused loss forward into future years until it is used up, he said.

Next you have to deal with capital gains and losses.

If you have a net capital gain, you add it to your gross income, he said.

“If you have a net capital loss, you can deduct up to $3,000 from your gross income,” he said. “If your loss exceeds $3,000, the unused balance can be carried forward indefinitely.”

Then, going forward each year, you can offset any capital gains — including capital gains distributions from mutual funds — against your capital loss carry forward, he said.

You can then deduct up to $3,000 against other income.

This brings us to your gross income.

Once you have gross income, you deduct certain adjustments to income.

“These adjustments can be, among others; educator expenses, health saving account contributions, IRA contributions and student loan interest,” he said. “After deducting these adjustments, we arrive at adjusted gross income.”

The final step is to deduct your itemized deductions or the standard deduction.

Itemized deductions are medical, state and local income and real estate taxes up to $10,000, mortgage interest and charitable contributions, he said.

The alternative to itemizing your deductions is to take the standard deduction.

“For 2020, the standard deduction for a single person is $12,400 and $24,800 for a couple filing jointly. If you are over 65 you get an extra standard deduction of $1,650 and $2,600 if both of you are over age 65.”

Because of the $10,000 cap on state and local taxes — SALT — more and more people in New Jersey with small mortgages are taking the new higher standard deduction, Kiely said.

“We now have taxable income and the next step is to look at the tax tables to calculate your income tax,” he said. “The simple answer to your question is yes, you can deduct capital losses even if you take the standard deduction.”

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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for’s weekly e-newsletter.

Can I take losses on my stocks and use the standard deduction? (2024)


Can I write off stock losses if I take the standard deduction? ›

Yes, but there are limits. Losses on your investments are first used to offset capital gains of the same type. So, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain.

Is losing money on stocks tax deductible? ›

The IRS allows you to deduct from your taxable income a capital loss, for example, from a stock or other investment that has lost money. Here are the ground rules: An investment loss has to be realized. In other words, you need to have sold your stock to claim a deduction.

Can you claim business losses and standard deduction? ›

The truth is, however, that the two are distinct and separate from one another. This means that you can declare a business loss and take a standard deduction on the same tax return.

Why are my capital losses limited to $3,000? ›

The $3,000 loss limit is the amount that can be offset against ordinary income. Above $3,000 is where things can get complicated. The $3,000 loss limit rule can be found in IRC Section 1211(b). For investors with more than $3,000 in capital losses, the remaining amount can't be used toward the current tax year.

Can you take stock losses if you don't itemize? ›

“The simple answer to your question is yes, you can deduct capital losses even if you take the standard deduction.”

Can you write off 100% of stock losses? ›

If you own a stock where the company has declared bankruptcy and the stock has become worthless, you can generally deduct the full amount of your loss on that stock — up to annual IRS limits with the ability to carry excess losses forward to future years.

Can I use more than $3000 capital loss carryover? ›

Capital losses that exceed capital gains in a year may be used to offset capital gains or as a deduction against ordinary income up to $3,000 in any one tax year. Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted.

How many years can stock losses be carried forward? ›

If the net amount of all your gains and losses is a loss, you can report the loss on your return. You can report current year net losses up to $3,000 — or $1,500 if married filing separately. Carry over net losses of more than $3,000 to next year's return. You can carry over capital losses indefinitely.

How much capital loss can you write off? ›

The IRS will let you deduct up to $3,000 of capital losses (or up to $1,500 if you and your spouse are filing separate tax returns). If you have any leftover losses, you can carry the amount forward and claim it on a future tax return.

What else can I deduct if I take the standard deduction? ›

Deductible expenses

You can deduct these expenses whether you take the standard deduction or itemize: Alimony payments. Business use of your car. Business use of your home.

Can S Corp losses offset personal income? ›

Any business income or loss is "passed through" to shareholders who report it on their personal income tax returns. This means that business losses can offset other income on the shareholders' tax returns.

Can you deduct business expenses without itemizing? ›

If you're self-employed or own a business, you can deduct business expenses on your taxes regardless of whether you take the standard deduction or itemize. "Business expenses are known as above the line deductions which are available regardless of the choice to itemize.

How much stock loss can you write off per year? ›

You can deduct stock losses from other reported taxable income up to the maximum amount allowed by the IRS—up to $3,000 a year—if you have no capital gains to offset your capital losses or if the total net figure between your short- and long-term capital gains and losses is a negative number, representing an overall ...

What is the $3000 loss rule? ›

If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 16 of Schedule D (Form 1040), Capital Gains and Losses.

What can you write off with standard deduction? ›

You can deduct these expenses whether you take the standard deduction or itemize:
  • Alimony payments.
  • Business use of your car.
  • Business use of your home.
  • Money you put in an IRA.
  • Money you put in health savings accounts.
  • Penalties on early withdrawals from savings.
  • Student loan interest.
  • Teacher expenses.

Can standard deduction offset capital gains? ›

But one can impact the other. The answer to the question “does the standard deduction apply to capital gains?” is technically yes, as the standard deduction applies to all taxable income (though capital gains tend to be taxed at a lower rate).

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