How To Deduct Stock Losses From Your Tax Bill in 2025
Written by
John Csiszar
Edited by
Joe Evans
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If you’ve taken a hit in the stock market this year, you’re probably wondering exactly how much stock loss can you write off. The good news is that the IRS lets you turn those losses into a tax break — up to a point.
You can deduct up to $3,000 in stock losses per year against your ordinary income, helping reduce your debt or boost your refund.
Here’s how to make those losses work for you — and what rules to follow so you don’t leave money on the table.
What Are Capital Gains and Capital Losses?
When you sell a stock for more than you paid, that’s a capital gain. When you sell it for less, that’s a capital loss.
Short-Term vs. Long-Term Losses
- Short-term losses come from stocks you held for a year or less
- Long-term losses come from stocks held over a year
The IRS treats these differently, so knowing the type of loss helps you apply it correctly when filing.
How Much Stock Loss Can You Write Off Each Year?
You can deduct up to $3,000 per year in net capital losses against your regular income (or $1,500 if married filing separately). That’s called the capital loss deduction rule. This helps lower your taxable income — even if you didn’t have any investment gains.
What If Your Losses Are More Than $3,000?
You won’t lose the rest — the IRS lets you carry forward unused losses to future years. For example:
| Year | Capital Gains | Capital Losses | Taxable Effect |
|---|---|---|---|
| 2025 | $0 | $5,000 | Deduct $3,000; carry forward $2,000 |
| 2026 | $2,000 | $2,000 carryover | Offset gains completely |
Using Stock Losses To Offset Gains
Before applying losses to income, the IRS first applies them to your capital gains.
What Is Tax-Loss Harvesting?
Tax-loss harvesting is the strategy of selling losing stocks to reduce your taxable gains. It’s especially helpful in a volatile market.
For example:
- You sell a stock for a $10,000 gain
- You also sell a different stock at an $8,000 loss
- You’ll only owe taxes on the net $2,000 gain
How To Carry Forward Stock Losses
If your losses exceed your gains plus the $3,000 deduction limit, the leftover amount rolls over to future tax years — indefinitely.
Example: Let’s say you have $8,000 in total losses and only $2,000 in gains this year.
- Offset the $2,000 gain
- Deduct $3,000 from income
- Carry forward $3,000 to next year
How To Report Stock Losses on Your Tax Return
Forms You’ll Need:
- Form 8949: Report capital asset sales
- Schedule D: Summarizes gains and losses
Step-by-Step Example:
- List each sale and its profit or loss on Form 8949
- Transfer totals to Schedule D
- Calculate your net capital gain or loss
- Deduct up to $3,000 from your ordinary income
Understanding the Wash Sale Rule
| What It Is | How To Avoid It |
|---|---|
| If you sell a stock at a loss and rebuy the same or “substantially identical” stock within 30 days, the IRS won’t allow you to deduct the loss. | Wait at least 31 days before repurchasing the same stock. |
| This is known as the wash sale rule and it applies to stocks, options, and mutual funds. | Instead of rebuying the same stock, consider a similar but not identical investment (like a different ETF). |
Strategies To Maximize Tax Savings With Losses
Offset Short-Term Gains First
Short-term gains are taxed at higher ordinary income rates. Prioritize using losses here to lower your bill.
Replace Sold Stocks With Similar Investments
Stay invested without triggering the wash sale rule by choosing related funds or sectors.
Year-End Tip: Selling underperforming stocks in November or December lets you lock in losses before the end of the tax year. That’s a smart time to offset gains and reduce taxable income.
Common Mistakes To Avoid
- Forgetting to report carryforward losses
- Violating the wash sale rule
- Failing to apply losses to short-term gains first
Final Take: Make Your Losses Work for You
Nobody likes losing money, but with the right tax strategy, even a down market can have a silver lining. If you’re wondering how much stock loss can you write off, the answer is usually up to $3,000 per year — and any extra can be rolled into future returns.
By learning how to use the stock loss tax deduction to your advantage, you could reduce your taxable income, offset gains and lower your overall tax bill.
Now’s a great time to review your portfolio, take stock of your winners and losers and consider locking in losses before year-end. If you’re unsure how to apply these strategies, a tax pro or financial advisor can help you get the most out of your filing.
FAQ About Writing Off Stock Losses
Here are the answers to some of the most frequently asked questions about writing off stock losses and how it works:- How much stock loss can I write off on my taxes in 2025?
- You can deduct up to $3,000 in net capital losses from ordinary income. Any excess can be carried forward to future tax years.
- Can I carry forward stock losses to next year?
- Yes. Losses that exceed the annual $3,000 deduction limit can be carried forward indefinitely until fully used.
- Do stock losses reduce taxable income?
- Yes. Capital losses first offset capital gains. If your losses are greater than your gains, you can deduct up to $3,000 from your ordinary income.
- What is the IRS wash sale rule?
- It disallows the deduction if you buy the same or a substantially identical stock within 30 days of selling it at a loss.
- Should I sell losing stocks for a tax deduction?
- If you have gains to offset or want to reduce your income tax, it can be a smart move — just be sure to avoid triggering the wash sale rule.
Caitlyn Moorhead contributed to the reporting of this article.
Information is accurate as of June 6, 2025.
Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.
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