Offsetting Capital Losses for Taxes

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If I sell a stock that I held for 2 years at a price that is below what I paid, say I lose 1$0,000 in total, and I owe $20,000 in taxes, how much can I reduce my taxes by?When you sell a stock for less than what you paid, you incur a capital loss. In the United States, capital losses can be used to offset capital gains and reduce taxable income. If you have no capital gains, you can still use capital losses to offset up to $3,000 of ordinary income each year. Any remaining loss can be carried forward to future tax years.

Since you incurred a $10,000 capital loss and owe $20,000 in taxes, here's how it would work:

1. If you have capital gains, your $10,000 loss can be used to offset those gains dollar-for-dollar.
2. If you have no capital gains, or after offsetting them, you can deduct up to $3,000 from your ordinary income.
3. Any remaining loss after this ($7,000 in your case) can be carried forward to future tax years.

So, in your scenario, if you have no capital gains to offset, you can reduce your taxable income by $3,000 for the current year. This would reduce your tax liability, but the exact amount of tax reduction depends on your marginal tax rate. If your marginal tax rate is, say, 25%, then reducing your taxable income by $3,000 would reduce your taxes by $750 ($3,000 * 25%).

The remaining $7,000 loss can be carried forward to future tax years and used in a similar manner.

Offsetting Capital Losses for Taxes created at Tue Jan 20 1970 18:02:58 GMT+0000 (Coordinated Universal Time)