Capital Loss, Explained Simply
Selling an investment for less than you paid can actually cut your tax bill.
A capital loss is what you have when you sell an investment for less than you paid for it.
Say you bought $1,000 of a stock and later sold it for $700. That $300 gap is a capital loss. It only becomes real, in the eyes of the IRS, when you actually sell. Until then it is just a paper loss that can still bounce back.
Here is the part most folks miss. Capital losses are not all bad news. At tax time you can use them to cancel out capital gains from your winners. If your losses are bigger than your gains, you can generally use up to $3,000 of the extra to lower your regular taxable income each year, and carry the rest forward to future years.
Losses fall into short-term (held a year or less) and long-term (held more than a year) buckets, and they get matched against gains of the same type first. It sounds fiddly, but good tax software or a preparer handles the sorting for you.
Bottom line: A capital loss stings, but selling a loser can hand you a real tax break that softens the blow.
This is general education, not personal investment or tax advice.
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