Turning a setback into a win

Q: Can I use market losses to lower my taxes?

A: The short answer is yes. In fact, many people sell losing stock investments with that specific goal in mind, especially around the end of the year, a concept known as tax-loss selling. As far as a write-off is concerned, it depends how long you’ve owned the stock and if you have capital gains from other investments.

If you’ve owned the stock for more than a year, the loss will be considered a long-term capital loss. If you’ve owned it for a year or less, it will be considered a short-term capital loss.

If you have any capital gains from the sale of stock or other investments, your loss will be used to offset this income first. Longterm losses will first be used to offset long-term gains, and shortterm losses will first be used to offset short-term gains. After that’s done, it can be used to offset any remaining capital gains.

If your losses exceed your capital gains, you can use up to $3,000 in net capital losses to offset your other taxable income sources, such as your salary. Any excess can be carried over to the next tax year.

In this specific case, your $1,000 loss would be classified as a long-term capital loss. It would first be used to offset any longterm capital gains, if you have any. If not, it would then be applied to short-term capital gains, and any excess could then be used to reduce your other taxable income.