You check your brokerage account and the screen is a sea of red. It happens. Whether it’s a speculative tech play that cratered or a blue-chip stock that finally hit a wall, seeing realized losses is painful. But here is the thing: the IRS actually shares a bit of that pain with you, provided you know the rules. Most investors have heard they can use losses to lower their taxes. They haven’t always heard the specifics.
So, how much stock loss can you write off? Honestly, there isn't a single "number" because it depends entirely on whether you have capital gains to offset. If you sold other stocks for a profit this year, you can write off an unlimited amount of losses against those gains. Sold a house for a $50,000 profit but lost $50,000 on Nvidia? You owe zero capital gains tax. That’s the beauty of it.
But if your losses are greater than your gains—or if you have no gains at all—the IRS gets a lot stingier. In that scenario, you’re capped at a **$3,000 net loss deduction** against your ordinary income per year ($1,500 if you're married filing separately). It’s a low ceiling. It hasn't been updated since the 1970s.
The $3,000 Limit and the Carryover Secret
It feels unfair. You lose $20,000 in a market crash, and Uncle Sam only lets you take $3,000 off your taxable income? Yes. That is the rule. However, those "extra" losses don't just vanish into thin air. They become what tax pros call a capital loss carryover.
Imagine you had a rough 2024 and ended up with a $15,000 net loss. You use $3,000 to lower your 2024 income. The remaining $12,000 rolls over to 2025. If 2025 is also a quiet year with no gains, you take another $3,000. You keep doing this until the bucket is empty. This is a massive strategic advantage for long-term wealth building. You are basically creating a "tax bank" that you can draw from in future years when you eventually sell a winner.
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Let's look at an illustrative example. Suppose Sarah sells "Company A" for a $10,000 gain but sells "Company B" for a $25,000 loss. Her net loss is $15,000. She wipes out the tax on the $10,000 gain entirely. Then, she uses $3,000 of the remaining loss to reduce her salary income. She still has $12,000 left to use next year. It’s a slow burn, but it works.
Avoiding the Dreaded Wash Sale Rule
You cannot just sell a stock to lock in the tax loss and immediately buy it back because you still like the company. The IRS saw that trick coming decades ago. They call it the Wash Sale Rule.
Basically, if you sell a security at a loss and buy a "substantially identical" security within 30 days before or after the sale, the loss is disallowed for the current tax year. You don't lose the loss forever, but you can't use it now. Instead, the loss is added to the cost basis of the new stock you bought. This is where people get tripped up.
Thirty days. That’s the magic window.
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If you sell Intel at a loss, you can’t buy Intel back for 31 days. Can you buy an AMD instead? Usually, yes. They are different companies. Can you sell an S&P 500 ETF from Vanguard and immediately buy an S&P 500 ETF from BlackRock? The IRS hasn't issued a definitive "no" on that specific ticker-swap, but most conservative tax advisors suggest it’s too close for comfort. They are "substantially identical" because they track the exact same index.
Short-Term vs. Long-Term: Does It Matter?
Tax-loss harvesting has its own hierarchy. The IRS categorizes everything by how long you held the asset. If you held it for a year or less, it's short-term. More than a year, it's long-term.
- Short-term losses first offset short-term gains.
- Long-term losses first offset long-term gains.
- If you have excess losses in one category, they can then offset gains in the other.
Why does this matter? Because short-term gains are taxed at your ordinary income rate, which can be as high as 37%. Long-term gains are taxed at 0%, 15%, or 20%. Naturally, you’d rather use a loss to wipe out a short-term gain that would have been taxed at 37% than a long-term one taxed at 15%. It’s about maximizing the "tax alpha" of your portfolio.
Real-World Nuances Most People Miss
There is a weird misconception that you should only harvest losses in December. That’s a mistake. The market doesn't care about the calendar. If a stock you own drops 30% in May and you don't think it's coming back soon, harvest it then. You can re-enter the position after 31 days. If you wait until December, the stock might have already rebounded, and your "tax gift" has evaporated.
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Also, consider the Standard Deduction. If your income is already very low, or if you have so many deductions that your taxable income is zero, taking the $3,000 stock loss write-off might be a waste of a good loss. You might be better off "saving" those losses for a year when you’re in a higher tax bracket.
The Specific Steps to Take Now
If you are staring at a portfolio that is down, don't just sit there. Take action. Here is how you actually execute this without making a mess of your 1040.
- Audit your "Lot" data: Look at individual blocks of shares. You might have bought a stock five times. Maybe three of those "lots" are at a profit, but two are at a loss. You can sell specifically the losing lots—this is called "Versus Purchase" or "Specific Identification"—to trigger a loss while keeping your overall position in the company.
- Check your year-to-date (YTD) gains: Most brokerages like Fidelity, Schwab, or Robinhood have a "Realized Gains/Losses" tab. See where you stand. If you're up $5,000 for the year, you need to find $5,000 in losses to get that tax bill to zero.
- Watch the 30-day clock: If you sell on December 15th, do not buy back until January 16th. If you do it on January 5th, you’ve triggered a wash sale for the previous tax year, and you’ll be very annoyed when you see your 1099-B.
- Think beyond stocks: These rules generally apply to ETFs, mutual funds, and even crypto (though the "wash sale" rules for crypto are currently a legal gray area, most pros expect them to be formalized soon).
The reality of how much stock loss can you write off is that the government gives you a small window to vent your frustrations, but a wide-open door to offset your wins. It’s one of the few ways the tax code actually favors the individual investor. Don't leave that money on the table just because it feels like admitting defeat. Selling a loser to save on taxes isn't losing; it's smart math.
Keep your records tight. When you do carry over a loss, make sure it shows up on your tax software the following year. It’s easy to forget a $10,000 carryover from three years ago, but that’s basically a gift card for your future self. Use it.