Stock Market Crash Could Mean Tax Writeoffs for Investors
National Society of Accountants Reports Real Estate Losses May Also be Eligible
ALEXANDRIA VA - It's been a rough year for stocks and real estate. Many Americans are showing substantial losses in their financial portfolios.
But the National Society of Accountants (NSA) reports there is a silver lining to this dark cloud: Potential tax write-offs for investment and real estate losses!
"This is the one bright spot in an otherwise dismal financial year," says NSA President James H. Nolen EA, ABA, ATA, ATP. "Fortunately, the tax code allows most individuals and businesses to claim some or all of their losses on any investments or real estate other than primary residences they may have sold at a loss. But the key is that it must be sold or exchanged - just showing a 'paper loss' in an investment account or the reduced value of a home that is still owned does not qualify for a tax break."
The Internal Revenue Service (IRS) generally allows realized capital losses to be offset against realized capital gains. Any excess losses can be deducted against ordinary income up to $3,000 ($1,500 if married filing separately) on line 13 of Form 1040.
Losses in excess of this limit can be carried forward to later years to reduce capital gains or ordinary income until the balance of these losses is used up.
Capital gains and losses on the sale or trade of investments are classified as either short-term - if the property has been held for one year or less - or long-term on Schedule D of Form 1040. Though these two categories of capital gains and losses are subject to different rates in the event of a net gain, a net capital loss resulting from either category is directly deductible from ordinary income up to the annual limit. This provision of law often works to the taxpayer's advantage, yielding greater relief for losses than if an applicable long-term capital gains tax rate were used. Generally, capital gains rates are lower than the rates on ordinary income.
Taxpayers seeking more information on how to reduce their tax bill through by deducting stock and investment losses on their tax returns can get help from IRS Publication 544, Sales and Other Dispositions of Assets; Publication 564, Mutual Fund Distributions; and Publication 550, Investment Income and Expenses (Including Capital Gains and Losses).
Professional accountants and tax preparers who are familiar with these tax laws can also provide advice on how to handle potential tax breaks.
NSA and its affiliates represent 30,000 members who provide accounting, auditing, tax preparation, financial and estate planning, and management services to approximately 19 million individuals and business clients. Most members are sole practitioners or partners in small- to medium-size accounting firms. NSA protects the public by requiring its members to adhere to a strict code of ethics and maintain an annual continuing education regimen. For more information and to locate an accountant in your area, visit www.nsacct.org.
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