When your investment is lost or canceled, you may be eligible to claim a loss on your taxes. The Internal Revenue Service (IRS) allows you to claim a tax deduction for your investment losses. However, to qualify for the deduction, you must sell the asset in question. To file for this deduction, you must fill out Form 8949, which must be completed before you file your Schedule D. Instructions for completing Form 8949 are included in the 2011 instructions for Schedule D.
Fortunately, most investment losses are not taxable unless you can prove that you purchased the investment through a stockbroker. Fraudulent sales of stocks and other investments can result in heavy financial losses for millions of investors. While stockbrokers may present facts that are misleading, it’s still important to review all the facts before investing. Investment losses are taxable only if the stockbroker acted negligently and the investment was sold to a third party.
Another method for realizing your investment losses is tax-loss harvesting. Tax-loss harvesting is a method that allows investors to recognize their losses and offset them against realized capital gains. TDAIM monitors client portfolios every day to identify opportunities for tax-loss harvesting. We will help clients realize their losses throughout the year so they can offset their capital gains. If you’re unable to reap the benefits of investment-loss harvesting, contact a financial advisor for help.
Investment-related theft is another common way that investors can claim a deduction. When it comes to investment theft, the perpetrator must have an intent to defraud the investor. In addition, the investment must have been purchased directly from the perpetrator. A deductible amount is based on the date the loss was discovered and whether there’s a reasonable chance that you’ll ever be reimbursed. A taxpayer investor may also claim a deduction for a theft loss if the investment was lost to an intermediary.
As with theft, investment losses are typically classified as casualty or theft losses. Individuals calculate their casualty losses on Form 4684. A small business corporation can claim up to half of its capital loss as an investment loss. This amount can be deducted from any source of income. In addition to claiming a capital loss, individuals can also take a deduction for interest paid on loans to the corporation. If the loss exceeds the deduction, the taxpayer may choose to pay dividends or charge interest on loans to the corporation.