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Capital loss is the difference between a lower selling price and a higher purchase price or cost price of an eligible Capital asset, which typically represents a financial loss for the seller.[1][2] This is distinct from losses from selling goods below cost, which is typically considered loss in business income.
 | The examples and perspective in this article deal primarily with the United States and do not represent a worldwide view of the subject. (December 2010) |
The IRS states that "If your capital losses exceed your capital gains, the excess can be deducted on your tax return."[citation needed] Limits on such deductions apply. For individuals, a net loss can be claimed as a tax deduction 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.[3]
Special wash sale rules apply if the same or substantially similar asset is bought, acquired, or optioned within 30 days before or after the sale.[4]
According to 26 U.S.C. §121, a capital loss on the sale of a primary residence is generally tax-exempt.[citation needed]. 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.[5]
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