When can I record a capital loss?

QUESTION :

I trade Forex, i deposited ruffly about 4k to the account and i never withdrew my profits and now i "blew my account" I lost all my money , can i claim that loss since i never withdrew money? i heard that the most that i can claim is 3k? is this true? Thank you

ANSWER :

I haven't traded forex, so I'm not completely familiar with that area, but in general, you don't record a gain or loss until you actually SELL (or exchange) the asset you invested in.Let's say you invested $4k in euros. They went up to $6k, but you never sold. Now they dropped to $100 but you still haven't sold anything. No gain or loss is recorded until you actually SELL something.

If you don't have other gains to offset your single loss (of $4k), then yes, losses are limited to $3k in most cases. But, you can carry forward the remaining $1k of losses (your case) to next year.

There are a couple significant exceptions to the rule of "no tax until a sale". One are options, futures or similar products which can EXPIRE with no value. If the option expired worthless, the expiration date is considered the date SOLD (with corresponding loss).

Another exception is a "worthless security". This can be tricky. If a company's shares drop to essentially zero, they may be delisted from an exchange before you can SELL them. The shares are worthless and untradeable, but the tax code makes it hard to record a loss without actually SELLING them.

Anyway, in general, look at the 1099-B which your brokerage should send you in February. Look for transactions there. If the brokerage lists a transaction there (gain or loss), you should enter it on your tax return.

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