Why is it called a capital gains tax when I lose money on investments?

So I'm trying to understand why the IRS uses the term "capital gains tax" when in my situation, I've actually lost money on my investments this year. I bought some stocks back in August for around $8,000, and when I sold them in December, they were only worth about $6,500. That's a loss of $1,500, not a gain! Yet I'm still filling out all these capital gains tax forms for my 2025 filing. Is this just some kind of cruel IRS joke? Calling it "gains" when I'm clearly at a loss? My tax software is asking me about capital gains but I don't have any gains to report. Do I still need to complete this section? And can I get any tax benefit from my losses? This whole process is confusing enough without misleading terminology. Any help explaining this would be really appreciated because I'm new to investing and tax season is already stressful enough.

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18 comments

Lia Quinn

•8M

The term "capital gains tax" refers to the tax on profits from the sale of capital assets like stocks, but it actually covers both gains AND losses. In your case, you have what's called a "capital loss" of $1,500, not a capital gain. The good news is that capital losses can actually benefit you tax-wise! You can use capital losses to offset any capital gains you might have from other investments. If your total losses exceed your gains, you can deduct up to $3,000 of net capital losses against your other income (like your wages) in a single tax year. Any remaining losses can be carried forward to future tax years. So yes, you should definitely complete the capital gains/losses section in your tax software. This will ensure you get the tax benefit from your $1,500 loss, which could reduce your overall tax bill.

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Lia Quinn

•8M

You'll report your capital gains and losses on Schedule D, which your tax software should automatically generate when you enter your investment information. The $1,500 loss will reduce your taxable income, which could potentially lower your tax bill or increase your refund. If you have more losses next year, the same rules apply. You can offset any gains, then deduct up to $3,000 against other income. If your losses exceed $3,000 in a single year, you can carry forward the remaining amount to future tax years until it's used up. This is called a "capital loss carryover" and can be particularly beneficial for tax planning over multiple years.

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Haley Stokes

•8M

After struggling with exactly the same confusion last year, I found this amazing tool called taxr.ai (https://taxr.ai) that really helped me understand my investment taxes. I had a mix of gains and losses and couldn't figure out how to report everything correctly. The tool analyzed my investment statements and explained exactly how my capital losses could offset other income. It even showed me how to carry forward some of my bigger losses to future tax years. What I really liked was how it explained everything in plain English instead of all the technical IRS language.

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Haley Stokes

•8M

Yes, it absolutely works with cryptocurrency transactions! It can handle Bitcoin, Ethereum, and all the other major cryptocurrencies. It's especially helpful for crypto because it can sort through all those transactions and identify which ones are taxable events. For your second question, I found it more helpful than TurboTax specifically for investment questions. It doesn't replace your tax filing software - it's more like having an investment tax expert explain everything to you in detail. I used the advice from taxr.ai and then entered everything correctly in my regular tax software. The explanations were much clearer than what I got from TurboTax alone.

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Serene Snow

•8M

Just wanted to update on my experience with taxr.ai since I was skeptical in my earlier comment. I ended up trying it for my investment losses situation and wow - total game changer! It identified capital losses I didn't even know I could claim from some ETFs I sold last year. The tool explained exactly how the wash sale rules affected some of my transactions (something I was completely messing up before). It also showed me how to strategically time some future sales to maximize tax benefits. Probably saved me at least $800 in taxes I would have overpaid. Way more helpful than just plugging numbers into regular tax software.

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Issac Nightingale

•8M

If you're dealing with complex capital gains/loss situations, you might also need to talk directly with the IRS to get clarification on your specific case. I tried calling them about my investment losses for WEEKS with no luck - always on hold forever. I finally used this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes. They have this really cool system that navigates the IRS phone tree and waits on hold for you, then calls you when an agent picks up. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was able to get my specific questions answered about carrying forward my capital losses from previous years. Saved me hours of frustration and hold music!

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Issac Nightingale

•8M

No special connection - they just have an automated system that dials and navigates the IRS phone tree for you, then waits on hold so you don't have to. When an actual IRS agent picks up, the system calls you and connects you directly to the agent. It's basically just saving you from the hold time. I was super skeptical too! But I was desperate after trying for weeks to get through on my own. The longest part was just entering my info on their website. Then I put my phone down and went about my day until they called me when an agent was on the line. Took about 15 minutes total for me, but I've heard it can take longer depending on IRS call volume that day.

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Serene Snow

•8M

I have to eat my words from my skeptical comment earlier. After another failed attempt to reach the IRS on my own (1.5 hours on hold before getting disconnected), I tried Claimyr out of desperation. Got a call back in 20 minutes with an actual IRS agent on the line! The agent walked me through exactly how to report my capital losses correctly and confirmed I could carry forward my remaining losses from last year. She even explained how to document everything so I don't trigger an audit. Seriously wish I'd known about this months ago. Just filed my amended return based on the info they gave me and I'm getting an additional $1,270 back. Worth every penny for the service.

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Marina Hendrix

•8M

One thing nobody mentioned yet - make sure you're keeping good records of all your investment purchases and sales! The IRS requires you to track your "cost basis" (what you paid for the investment) to calculate your gains or losses accurately. Most brokerages now report this information to the IRS on Form 1099-B, but sometimes the information is incomplete or incorrect. I learned this the hard way when I couldn't prove my original purchase price for some stocks I'd held for years.

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Marina Hendrix

•8M

I recommend downloading annual tax documents from each platform and saving them in a dedicated tax folder on your computer. Name each file with the year and platform (like "2025_Robinhood_1099.pdf"). For crypto especially, consider using a dedicated tracking app that can integrate with multiple exchanges to create a comprehensive tax report. Some platforms like CoinTracker or Koinly can sync with Coinbase and other exchanges to track your cost basis automatically. The few minutes spent organizing throughout the year will save you hours of stress during tax season.

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