Truth 35. How bad investments can pay off
No one wants to lose money on an investment. But when it comes to taxes, a loss could turn out to be a good thing.
If you’ve made money via capital gains, a loss on another asset sale could help reduce or possibly eliminate your tax liability.
If you have no capital gains to offset, a portion of your losses can be applied against your ordinary income.
And if you have substantial losses, they could pay off on tax returns for several years.
Determining your basis—The first step in making use of a stock sale loss is determining the asset’s “basis.” Your initial basis is what you originally paid for the asset. It’s then adjusted by accounting for other expenses incurred while you owned it.