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Capital loss

A capital loss occurs when a capital asset is sold at a loss.

Expanded Definition

On Federal income tax returns, on Schedule D, capital losses can be deducted from their in kind capital gains. Long term losses reduced long term gains; short term losses reduce short term gains.

If capital losses exceed capital gains, up to $3000 per year may be deducted from ordinary income. Any excess over $3000 may be treated as a capital loss carry over and deducted from future years' income until the total loss has been fully deducted.

Unlike capital gains, mutual fund investors do not receive notice of capital losses. Instead mutual fund losses are carried over by the fund and reduce future capital gains distributions until the loss is consumed.

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