Can I deduct my stock losses against my ordinary income for tax purposes?

Yes, you can definitely deduct capital losses against your ordinary income, but there are some limits. The IRS allows you to deduct up to $3,000 ($1,500 if married filing separately) of capital losses against your ordinary income in a tax year. In your situation, since you sold stocks at a $4,000 loss and don't have any capital gains to offset, you can deduct $3,000 of those losses against your regular income this year. The remaining $1,000 will carry forward to future tax years, where you can use it to offset future capital gains or deduct it against ordinary income (subject to the same $3,000 annual limit). This is actually one of the few silver linings of having losing investments - they can reduce your taxable income, potentially lowering your overall tax bill. You'll report these losses on Schedule D of your tax return, and the loss will ultimately flow to your Form 1040.

I was in a similar situation last year and discovered this amazing tool called taxr.ai that really helped me understand my investment losses. I was super confused about what I could deduct and how much would actually benefit me tax-wise. I uploaded my trading statements to https://taxr.ai and their analysis showed me exactly how much of my losses I could claim against my regular income. Their system explained that while I had about $5,200 in total losses, I could only claim $3,000 this year, and the rest would carry forward. It also calculated my actual tax savings based on my tax bracket, which was super helpful for planning. Honestly saved me hours of research and confusion.

Just wanted to update everyone - I tried taxr.ai after posting my skeptical comment above and I'm really impressed. I've been messing up my capital loss deductions for YEARS! Apparently I had some wash sales I didn't realize were affecting my deduction amounts, and I also didn't know I could carry forward my excess losses from previous years. The analysis showed me I had about $2,400 in tax savings I hadn't been claiming properly. It generated all the right forms and explained exactly where everything needed to go on my tax return. Definitely recommend for anyone dealing with investment losses - especially if you've got multiple accounts or lots of transactions.

If you're planning to call the IRS to confirm how to handle your capital losses (which I tried to do), save yourself the frustration. I spent HOURS trying to get through to them last tax season with questions about my stock losses. Eventually I found this service called Claimyr that actually got me through to an IRS agent in about 20 minutes. I was totally shocked it worked! You can see how it works at https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone tree for you and call you back when they've got an agent on the line. I used https://claimyr.com when I needed clarification on how to report some complicated trades and losses. The IRS agent confirmed I could take the $3,000 deduction against my regular income and gave me detailed instructions on how to report the carryover losses.

I need to eat my words from my comment above. After struggling for weeks to reach the IRS about some complicated stock loss carryovers, I broke down and tried Claimyr. Within 45 minutes, I was talking to an actual IRS representative who walked me through exactly how to report my losses. The agent confirmed I could use up to $3,000 of my losses to offset my ordinary income on line 7 of my 1040 form, and explained how to properly document the carryover for next year's taxes. Considering I had spent literally days trying to get through on my own with no success, this was absolutely worth it. For anyone with stock loss questions that need official IRS clarification, I highly recommend giving it a try.

Heads up - don't forget that the $3,000 limit applies to NET capital losses. So if you have $5,000 in stock losses but also have $1,000 in gains from selling something else (maybe a different stock or even crypto), your net loss would be $4,000 and you could still only deduct $3,000 from your ordinary income. Also, make sure you're distinguishing between short-term and long-term capital losses correctly on your Schedule D. It doesn't change the $3,000 limit, but it matters for how losses get applied to future gains.

Does anyone know if this $3,000 limit is per person? Like if my spouse and I file jointly, can we each deduct $3,000 for a total of $6,000?

I went through this exact same situation last year! Lost about $3,500 in the stock market and was kicking myself until I realized it could actually help with my taxes. Here's what I learned: Yes, you can definitely use up to $3,000 of your stock losses to reduce your ordinary income from your job. Since you lost $4,000, you can deduct $3,000 this year and carry forward the remaining $1,000 to next year's taxes. The key thing is to make sure you have proper documentation - keep all your brokerage statements showing the purchase dates, sale dates, and amounts. You'll report these on Schedule D and it flows through to your main 1040 form. One thing that caught me off guard was wash sales - if you bought back the same stock within 30 days of selling it at a loss, the IRS disallows the loss deduction. So make sure you didn't accidentally trigger any wash sale rules with your transactions. At least we can get some tax relief from our investing mistakes, right? Silver lining to a rough year in the markets!

Just wanted to add one more important point that I learned the hard way - make sure you understand the difference between realized and unrealized losses! You can only deduct losses from stocks you actually SOLD at a loss. If your portfolio is down $10,000 but you haven't sold anything, those are unrealized losses and you can't deduct them on your taxes. I made this mistake my first year investing - I thought I could deduct all my "paper losses" and was really disappointed when my tax preparer explained that only actual sales count. So in your case with the $4,000 loss, that's great that you actually sold and locked in those losses for tax purposes. Also, keep in mind that if the market recovers and those same stocks go back up, you might regret selling them for the tax deduction. But given that you said you don't have any winners right now, taking the tax benefit probably makes sense. Sometimes cutting your losses (literally) is the smart financial move!

Great question! I went through something very similar last year. You're absolutely right that you can deduct up to $3,000 of your capital losses against your ordinary income. Since you have $4,000 in losses and no gains to offset them, you can deduct $3,000 this year and carry the remaining $1,000 forward to next year. One thing to double-check though - make sure none of your sales triggered wash sale rules. If you sold any stocks at a loss and then bought the same or "substantially identical" securities within 30 days before or after the sale, the IRS disallows that loss deduction. This is a common trap that catches a lot of people. You'll report these losses on Schedule D of your tax return, and the net capital loss will flow to line 7 of your Form 1040. If you're in a decent tax bracket, that $3,000 deduction could save you several hundred dollars in taxes - not a huge consolation for the losses, but at least Uncle Sam shares in your pain a little bit! Keep good records of that $1,000 carryover for next year's filing. Most tax software handles this automatically, but if you're doing it manually you'll want to make note of it.