What is capital loss?

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Host: What is capital loss?

Art Auerbach: Capital loss is when you take your selling price and you compare it to your cost basis and you paid more for the property than you sold it for, then you have a loss and the statute allows you to offset your capital losses against your capital gains. If you have an excess of losses, you can deduct up to $3000 excess losses in the current year on your preparation and the balance of any capital loss is carried over indefinitely until you use it up by matching it against capital gains or subtracting the $3000 a year until you use up the loss. Now, the important thing to remember here is if you sell a personal asset, so this might be happening now with some folks who are selling their homes. They purchased when the real estate market was high, they are selling now when it's lower. Losses on the disposition or a sale of a personal asset are not deductible at all. So it has to be an investment asset or business property that you sell at a loss not personal property. So, if you are listening to the first question and you are listening to this one, it may seem patently unfair in the tax court, that gains on the sale of personal property are taxable but losses on the sales of personal property are not deductible.

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