Definition
A capital loss is the loss from selling an asset for less than its cost basis.
How It Works
Capital losses first offset capital gains. If losses exceed gains, a limited amount can offset ordinary income each year, and the rest carries forward to future years.
Example
An investor with $30,000 of gains and $40,000 of losses offsets all the gains, deducts a limited amount against ordinary income, and carries the remainder forward.
When It Works Best
Harvesting losses works best in years with large gains to offset, or to build a carryforward against future gains.
Who It Applies To
Investors with taxable accounts.
Watch-Outs
The wash sale rule disallows a loss if you buy the same or a substantially identical security within 30 days before or after the sale.
