In times of uncertainty triggered by the COVID-19 outbreak, many of us are concerned about our financial stability. Especially, many business owners and investors are anxious to survive this horrible perfect storm. One way to survive is to minimize any potential financial losses resulting from this unprecedented natural disaster. One of the important logical questions to raise is “how can we reduce the tax burden if we suffer from the investment losses.”

Notice that we are eligible for tax breaks if we took a loss from the sales of your investment properties. In other words, your investment losses can be used to offset your capital gains.

Investment losses can be classified into a short-term and a long-term loss. A loss for an investment you owned less than one year before you dispose of it is a short-term capital loss. Its tax deduction is based on your income tax rate. However, notice that your investment loss must be realized, meaning that you must have divested yourself of the asset to claim the loss. For example, if your stock value dropped by $2,000 but you did not sell it, you cannot claim the loss. The amount of losses you can use each year to offset your gains is limited only by your total gains. You can deduct up to $3,000 a year in losses from your income. Although the maximum loss equals $3,000, it would be $1,500 if you are married but file a separate return. For example, if you had $1,000 in short-term gains and $3,000 in long-term losses, your net loss would be $2,000. If you don’t have any short-term gains, you can use it to offset a long-term gain. If your loss is more than $3,000, you can carry over your loss into future tax years and keep claiming your allowable capital loss deductions. For details, please refer to: https://www.irs.gov/taxtopics/tc409.

In particular, after witnessing stock-market melt-down in the wake of COVID-19 scares, many might have lost their stock investments. For more details about claiming your stock investment losses, please refer to: https://www.investopedia.com/articles/personal-finance/100515/heres-how-deduct-your-stock-losses-your-tax-bill.asp.

Another confusing fact is that when you sell your home for less than what you paid for, you are not allowed to deduct the loss on your taxes because it is regarded as the sale of property used for business and investment. The only way you can obtain a deduction is the situation where if you sell your home at a loss is to convert it to a rental property before you sell it. However, your deductible loss will be limited. Some lawyers indicated that you might claim the investment loss if you took a stock investment loss as a result of the negligent stock broker or financial advisor.