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I have a question concerning a sale of stock at a loss to be used as a deduction. Hopefully this hasn't been asked in the recent past (I took a cursory look over some of the recent posts and have not seen it yet), but if it has, please forgive the repetition.

I sold some stock during the last week of December to use as a loss. But an interesting thing came to mind: I don't have any capital gains. Last year when I sold stock at a loss, I had mutual fund capital gains which were offset by the loss. However, this year, I just realized that my funds haven't declared any capital gains.

My question, therefore, is this: will my loss help me in any way? Is a loss useful in offsetting dividend income and money market income, both of which I have? And, just in case I come across this scenario in the future, let me ask this: what if I sold tax at a loss but didn't have any capital gains or any dividend/interest income...what if I just had ordinary income? Is the loss useful in offsetting some of the ordinary income? I thank you for reading.
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My question, therefore, is this: will my loss help me in any way? Is a loss useful in offsetting dividend income and money market income, both of which I have? And, just in case I come across this scenario in the future, let me ask this: what if I sold tax at a loss but didn't have any capital gains or any dividend/interest income...what if I just had ordinary income? Is the loss useful in offsetting some of the ordinary income?

Please see this article in the FAQ: http://www.fool.com/school/taxes/2000/taxes000107.htm

TMF ExRO
Phil Marti
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<<Please see this article in the FAQ: http://www.fool.com/school/taxes/2000/taxes000107.htm>>

Mr. Marti:

Thank you for your response. I hope you won't mind a request for a bit of clarification.

The article gives all four tax-loss possibilities, and states at the end what to do if a specific situation is missing one of the parameters. My situation is deficient of a parameter, in that I just have a long-term loss (i.e. I sold stock at a loss which I held for more than a year).

I unfortunately don't fully understand the statement in the last paragraph which says if you don't have one of the transactions, consider the missing item a gain. If you could explain that, I'd appreciate it. I'm basically just trying to anticipate what the loss will do for me in advance of processing by my accountant, a preview of sorts.

And by the way: the article mentions the Foolish Four in passing. If I understand correctly, the Gardners have decided to drop this strategy. Even though it is mentioned in a very cursory way, it perhaps should be edited out. Once again, thanks for the information.
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I hope you won't mind a request for a bit of clarification.

Never.

The article gives all four tax-loss possibilities, and states at the end what to do if a specific situation is missing one of the parameters. My situation is deficient of a parameter, in that I just have a long-term loss (i.e. I sold stock at a loss which I held for more than a year).

I unfortunately don't fully understand the statement in the last paragraph which says if you don't have one of the transactions, consider the missing item a gain.


That last paragraph is just trying to help you see which of the preceding scenarios fits your situation. Since you have no short-term transactions, the last paragraph tells you to consider that as a short-term gain (of zero).

Having done that, you look at the scenario for a short-term gain and a long-term loss. There you'll see that, since your gain is zero, you'll use $3,000 of your loss against ordinary income, carrying the balance forward to 2001 as a long-term loss.

TMF ExRO
Phil Marti
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<<That last paragraph is just trying to help you see which of the preceding scenarios fits your situation. Since you have no short-term transactions, the last paragraph tells you to consider that as a short-term gain (of zero).>>

Mr. Marti, thanks again. I see exactly what it means: set the value to zero. It seems so obvious now! You've been a great help, take care...
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