- 1). Calculate your long-term capital losses for the tax year, transaction by transaction. A loss is a capital loss if you held the property for investment purposes only -- you cannot claim a capital loss for selling your personal residence, for example. Enter the information in Part II of Schedule D.
- 2). Determine your long-term capital gains for the tax year, if any. These capital gains may come from the sale of any capital asset -- real estate or corporate stock, for example. Enter the information in Part II of Schedule D.
- 3). Subtract your long-term capital losses from your long-term capital gains. Enter the result in Line 15 of Schedule D. If the result is zero or positive, you have no net long-term capital loss and cannot claim a deduction. If the result is negative, you have incurred a net long-term capital loss and don't have to pay capital gains tax on your long-term capital gains.
- 4). Calculate your net capital gain or loss for the tax year (both short-term and long-term) and enter the result in Line 16 of Schedule D. To arrive at this figure, you subtract short-term capital losses from short-term capital gains to arrive at a net short-term capital gain or loss, and add it to your long-term capital loss.
- 5). Subtract your net capital loss (both long-term and short-term) from your ordinary income in Line 13 of Form 1040. You may deduct up to $3,000 from your ordinary taxable income.
- 6). Carry over any capital losses that exceed $3,000 to the following tax year.
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