Capital loss is the difference between a lower selling price and a higher purchase price or cost price of an eligible

Capital asset A capital asset is defined as property of any kind held by an assessee. It need not be connected to the assesse’s business or profession. The term encompasses all kinds of property, movable or immovable, tangible or intangible, fixed or circula ...

, which typically represents a financial loss for the seller. This is distinct from losses from selling goods below cost, which is typically considered loss in business income.

United States

The

IRS The Internal Revenue Service (IRS) is the revenue service for the Federal government of the United States, United States federal government, which is responsible for collecting Taxation in the United States, U.S. federal taxes and administerin ...

states that "If your capital losses exceed your

capital gains Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares. A ca ...

, the excess can be deducted on your tax return." Limits on such deductions apply. For individuals, a net loss can be claimed as a

tax deduction A tax deduction or benefit is an amount deducted from taxable income, usually based on expenses such as those incurred to produce additional income. Tax deductions are a form of tax incentives, along with exemptions and tax credits. The diff ...

against ordinary income, up to $3,000 per year ($1,500 in the case of a married individual filing separately). Any remaining net loss can be carried over and applied against gains in future years. However, losses from the sale of personal property, including a residence, do not qualify for this treatment. Special wash sale rules apply if the same or substantially similar

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

is bought, acquired, or optioned within 30 days before or after the sale. According to 26 U.S.C. §121, a capital loss on the sale of a primary residence is generally tax-exempt.. IRC 165(c) is a stronger source that limits the loss on the sale of a personal residence. IRC 121 is for exclusion of gain of primary residence and does not talk about loss.

References

Pricing Capital gains taxes Tax terms {{Econ-policy-stub