Capital losses (2024)

Overview

When you dispose of an asset to someone who is not connected to you, and you make a loss, assuming the transaction was at arm’s length (in other words there was no element of gift), you may be able to use the loss to reduce your gains that are chargeable to tax.

You must first set any loss against any other capital gains made in the same tax year. This is the case even if the gains are covered by your annual exemption (this means you may waste your annual exempt amount).

If, after doing this, you still have losses remaining, you should let HMRC know so that you can carry them forward and use them in a later year. We discuss how to do this in our page Capital gains tax reporting. You cannot carry losses back to a previous tax year, except where assets have been disposed of by a taxpayer in the part of a tax year before death. See HMRC’s capital gains manual CG30430 for the carry back of losses when someone has died.

Losses made from the sale of capital assets are not allowed to be offset against income, other than in very specific circ*mstances (broadly if you have disposed of qualifying trading company shares).

You cannot claim a loss made on the disposal of an asset that is exempt from capital gains tax (CGT). We cover separately the situation if you are disposing of a property which has at some point been your only or main home.

Example – capital loss to carry forward

Eileen bought some shares in August 2002 for £22,000. In August 2024, she sold them for £5,000.

Eileen has made a loss of £17,000, which she must use against any capital gains she makes in the same tax year, 2024/25. If she has no gains (or not enough gains), she can carry the loss (or balance of any unused loss) forward against any capital gains she makes in future years.

Note that if you dispose of an asset by gift or at less than its market value to a connected party, such as a close relative (our page on gifts explains further), or to an unconnected party other than by way of an arm’s length transaction, relief for the loss that arises is restricted. HMRC’s capital gains manual CG14561 explains further.

Assets that are lost or destroyed

If you have a capital asset that is lost or destroyed, you treat this as a disposal.

If you receive compensation, the amount of compensation you receive is treated as the sales proceeds.

If you do not receive any compensation, your sale proceeds are effectively nil. In this case, you may be able to claim relief for a loss.

Shares of negligible value

Sometimes shares you own may lose all or most of their value. This can happen when the company involved either just stops trading or goes into liquidation or receivership.

If you own shares that are now of no value and therefore worthless, or almost worthless, you might be able to make a ‘negligible value claim’.

When you make a negligible value claim, if all the conditions are met, you are treated as if you sold the shares and then bought them back again at their negligible value (thereby creating a loss) on the earliest of the following dates:

  1. The date that HMRC receive the claim.
  2. A date you specify on the claim, that may be in either of the two previous tax years, if the shares became worthless or almost worthless at that time or earlier. This allows you to treat the loss as arising in a different tax year – this may be important if you have large gains in one of the two years as it could help you minimise any CGT bill.

You then work out your capital loss as if you sold the shares for their negligible value on that date.

HMRC publish a list of companies whose shares they consider have become worthless.

If the shares that have become worthless are not in a company quoted on the stock exchange, but in a private company, for example, a family trading company, you may be able to set off your loss against income of the same tax year in which the loss is made or the previous one. For more detailed information have a look at HMRC helpsheet 286.

If you do not normally complete a tax return, you shouldwrite to HMRCto claim any capital losses or you may lose them. In these circ*mstances you normally have four years from the end of the tax year when you want to make the claim to actually make the claim for losses. Therefore, a claim for a loss arising in the tax year which ended on 5 April 2024 would have to be made by 5 April 2028.

Capital losses (2024)

FAQs

What qualifies for a capital loss? ›

Capital losses are, of course, the opposite of capital gains. When a security or investment is sold for less than its original purchase price, then the dollar amount difference is considered a capital loss. For tax purposes, capital losses are only reported on items that are intended to increase in value.

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.

What is a capital loss example? ›

Understanding a Capital Loss

For example, if an investor bought a house for $250,000 and sold the house five years later for $200,000, the investor realizes a capital loss of $50,000. For the purposes of personal income tax, capital gains can be offset by capital losses.

How many years can capital 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.

Is it worth claiming capital losses? ›

You almost certainly pay a higher tax rate on ordinary income than on long-term capital gains so it makes more sense to deduct those losses against it. It's also beneficial to deduct them against short-term gains which have a much higher tax rate than long-term capital gains.

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.

What is the 6 year rule for capital gains tax? ›

Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they move out of their PPOR and then rent it out. There are some qualifying conditions for leaving your principal place of residence.

How do I know if I qualify for capital loss carryover? ›

The IRS caps your claim of excess loss at the lesser of $3,000 or your total net loss ($1,500 if you are married and filing separately). Capital loss carryover comes in when your total exceeds that $3,000, letting you pass it on to future years' taxes. There's no limit to the amount you can carry over.

Can capital losses offset ordinary income? ›

Capital losses can indeed offset ordinary income, providing a potential tax advantage for investors. The Internal Revenue Service (IRS) allows investors to use capital losses to offset up to $3,000 in ordinary income per year.

How are capital losses written off? ›

Capital loss is shown in the asset side as a fictitious asset which is gradually written off out of profits every year.

What happens if you don't report capital losses? ›

If you do not report it, then you can expect to get a notice from the IRS declaring the entire proceeds to be a short term gain and including a bill for taxes, penalties, and interest.

How do I calculate my capital loss? ›

Subtract your basis (what you paid) from the realized amount (how much you sold it for) to determine the difference.
  1. If you sold your assets for more than you paid, you have a capital gain.
  2. If you sold your assets for less than you paid, you have a capital loss.

At what age do you not pay capital gains? ›

Capital Gains Tax for People Over 65. For individuals over 65, capital gains tax applies at 0% for long-term gains on assets held over a year and 15% for short-term gains under a year. Despite age, the IRS determines tax based on asset sale profits, with no special breaks for those 65 and older.

Why are 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.

Can I offset capital losses against income? ›

Losses made from the sale of capital assets are not allowed to be offset against income, other than in very specific circ*mstances (broadly if you have disposed of qualifying trading company shares). You cannot claim a loss made on the disposal of an asset that is exempt from capital gains tax (CGT).

When to claim capital losses? ›

Capital Losses
  1. If you sell capital property such as land, jewelry, securities or a range of other items at a loss, you may be able to claim a capital loss on your taxes. ...
  2. The adjusted cost base of a property is the cost you paid for the property plus legal fees, commissions and other expenses incurred to purchase it.
Oct 21, 2020

Can you set off capital losses against income? ›

Long-term capital loss will only be adjusted towards long-term capital gains. However, a short-term capital loss can be set off against both long-term capital gains and short-term capital gain. Losses from a specified business will be set off only against profit of specified businesses.

What kind of losses are tax deductible? ›

Losses are only deductible if they are not covered by insurance. For example, during a storm that is declared a federal disaster by the President of the United States, a tree falls on your house. You get an estimate from a contractor who says repairs will cost $5,000.

How do I claim capital loss against income? ›

If you do not normally complete a tax return, you shouldwrite to HMRC to claim any capital losses or you may lose them. In these circ*mstances you normally have four years from the end of the tax year when you want to make the claim to actually make the claim for losses.

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