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Understanding Capital Loss Deductions

What are Capital Losses?
You incur a capital loss when you sell investments like stocks or real estate for less than you paid. The IRS allows these losses to reduce your taxable income.

How to Deduct Capital Losses:
You can deduct up to $3,000 of capital losses from your income annually if you're single or married filing jointly. For instance, if you bought stocks for $10,000 and sold them for $7,000, you've incurred a $3,000 loss that can reduce your taxable income from $50,000 to $47,000. Use Form Schedule D to claim this deduction when filing your taxes.

Excess Losses:
If your losses exceed $3,000, you can carry the remainder forward to future tax years. This process is managed using the Capital Loss Carryover Worksheet, allowing continued deductions in the years ahead.

Why It's Beneficial:
This deduction strategy lowers your tax bill and supports more informed investment decisions, softening the blow from unsuccessful investments.

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