Capital losses (2024)


When you dispose of an asset to someone who is not connected to you, and you make a loss, assuming the transaction was at arm’s length (in other words there was no element of gift), you may be able to use the loss to reduce your gains that are chargeable to tax.

You must first set any loss against any other capital gains made in the same tax year. This is the case even if the gains are covered by your annual exemption (this means you may waste your annual exempt amount).

If, after doing this, you still have losses remaining, you should let HMRC know so that you can carry them forward and use them in a later year. We discuss how to do this in our page Capital gains tax reporting. You cannot carry losses back to a previous tax year, except where assets have been disposed of by a taxpayer in the part of a tax year before death. See HMRC’s capital gains manual CG30430 for the carry back of losses when someone has died.

Losses made from the sale of capital assets are not allowed to be offset against income, other than in very specific circ*mstances (broadly if you have disposed of qualifying trading company shares).

You cannot claim a loss made on the disposal of an asset that is exempt from capital gains tax (CGT). We cover separately the situation if you are disposing of a property which has at some point been your only or main home.

Example: Eileen

Eileen bought some shares in August 2002 for £22,000. In August 2023, she sold them for £5,000.

Eileen has made a loss of £17,000, which she must use against any capital gains she makes in the same tax year, 2023/24. If she has no gains (or not enough gains), she can carry the loss (or balance of any unused loss) forward against any capital gains she makes in future years.

Note that if you dispose of an asset by gift or at less than its market value to a connected party, such as a close relative (our page on gifts explains further), or to an unconnected party other than by way of an arm’s length transaction, relief for the loss that arises is restricted. HMRC’s capital gains manual CG14561 explains further.

Assets that are lost or destroyed

If you have a capital asset that is lost or destroyed, you treat this as a disposal.

If you receive compensation, the amount of compensation you receive is treated as the sales proceeds.

If you do not receive any compensation, your sale proceeds are effectively nil. In this case, you may be able to claim relief for a loss.

Shares of negligible value

Sometimes shares you own may lose all or most of their value. This can happen when the company involved either just stops trading or goes into liquidation or receivership.

If you own shares that are now of no value and therefore worthless, or almost worthless, you might be able to make a ‘negligible value claim’.

When you make a negligible value claim, if all the conditions are met, you are treated as if you sold the shares and then bought them back again at their negligible value (thereby creating a loss) on the earliest of the following dates:

  • the date that HMRC receive the claim, and
  • a date you specify on the claim that may be in either of the two previous tax years, if the shares became worthless or almost worthless at that time or earlier. This allows you to treat the loss as arising in a different tax year – this may be important if you have large gains in one of the two years as it could help you minimise any CGT bill.

You then work out your capital loss as if you sold the shares for their negligible value on that date.

HMRC publish a list of companies whose shares they consider have become worthless.

If the shares that have become worthless are not in a company quoted on the stock exchange, but in a private company, for example, a family trading company, you may be able to set off your loss against income of the same tax year in which the loss is made or the previous one. For more detailed information have a look at HMRC helpsheet 286.

If you do not normally complete a tax return, you should write to HMRCto claim any capital losses or you may lose them. In these circ*mstances you normally have four years from the end of the tax year when you want to make the claim to actually make the claim for losses. Therefore, a claim for a loss arising in the tax year which ended on 5 April 2023 would have to be made by 5 April 2027.

Capital losses (2024)


What happens if you only have capital losses? ›

"By doing so, you may be able to remove some income from your tax return. If you don't have capital gains to offset the capital loss, you can use a capital loss as an offset to ordinary income, up to $3,000 per year. If you have more than $3,000, it will be carried forward to future tax years."

How much capital losses can you write off? ›

The IRS limits your net loss to $3,000 (for individuals and married filing jointly) or $1,500 (for married filing separately). Any unused capital losses are rolled over to future years.

Why are my capital losses limited to $3000? ›

The IRS allows investors to deduct up to $3,000 in capital losses per year. The $3,000 loss limit is the amount that can be offset against ordinary income. Above $3,000 is where things can get complicated. The $3,000 loss limit rule can be found in IRC Section 1211(b).

Is it worth claiming stock losses on taxes? ›

Those losses that you took in the previous calendar year in your portfolio can now be used to save you some money. When filing your taxes, capital losses can be used to offset capital gains and lower your taxable income. This is the silver lining to be found in selling a losing investment.

Can you write off 100% of stock losses? ›

Yes, but there are limits. Losses on your investments are first used to offset capital gains of the same type. So, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain.

Do I have to file taxes if I only have capital losses? ›

The IRS requires filers to report capital losses, even though capital losses on their own don't equate to owing taxes to the government. That said, capital losses have two primary tax implications: first, they combine with capital gains for the year to create a net loss or gain.

How many years can you carryover capital losses? ›

You can report current year net losses up to $3,000 — or $1,500 if married filing separately. Carry over net losses of more than $3,000 to next year's return. You can carry over capital losses indefinitely.

Can I use more than $3000 capital loss carryover? ›

The IRS caps your claim of excess loss at the lesser of $3,000 or your total net loss ($1,500 if you are married and filing separately). Capital loss carryover comes in when your total exceeds that $3,000, letting you pass it on to future years' taxes. There's no limit to the amount you can carry over.

What is the $3000 loss rule? ›

Capital losses that exceed capital gains in a year may be used to offset capital gains or as a deduction against ordinary income up to $3,000 in any one tax year. Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted.

At what age do you not pay capital gains? ›

Since the tax break for over 55s selling property was dropped in 1997, there is no capital gains tax exemption for seniors. This means right now, the law doesn't allow for any exemptions based on your age. Whether you're 65 or 95, seniors must pay capital gains tax where it's due.

What happens if capital losses exceed capital gains? ›

If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 16 of Schedule D (Form 1040), Capital Gains and Losses.

Can capital losses offset ordinary income? ›

Capital losses can indeed offset ordinary income, providing a potential tax advantage for investors. The Internal Revenue Service (IRS) allows investors to use capital losses to offset up to $3,000 in ordinary income per year.

Can I write off worthless stock? ›

Bottom line. If you have a worthless asset, you can claim your tax write-off and reduce your taxable income. But it's important that you follow the IRS procedures, because your brokerage may not report your loss on worthless securities that remain in your account if you can't dispose of them.

Can you write off capital losses if you don't itemize? ›

“The simple answer to your question is yes, you can deduct capital losses even if you take the standard deduction.”

Will I get a tax refund if my business loses money? ›

If you open a company in the US, you'll have to pay business taxes. Getting a refund is possible if your business loses money. However, if your business has what is classified as an extraordinary loss, you could even get a refund for all or part of your tax liabilities from the previous year.

Is a capital loss a worthless security? ›

When one determines for tax purposes that a security has become totally worthless, an investment fund can take a capital loss under IRC Section 165. The resulting loss may be deducted as though it were a loss from a sale or exchange on the last day of the taxable year in which it has become worthless.

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