Q: 2018 was a terrible year for my portfolio. I ended up selling several stocks in early 2019 in order to free up cash to pay certain expenses, and all of them were sold at a loss. In all, I sold stocks for about $5,000 less than what I paid. Can I deduct these losses when I file my 2019 tax return next year?
The short answer is yes. If you end up with capital gains later in the year, you can use these losses to help offset them for tax purposes.
And even if you don't end 2019 with any capital gains from selling other assets, you may be able to use your losses to offset your other taxable income. The only restriction is that the deduction for capital losses is capped at $3,000 per year. However, you can carry over any unused losses to subsequent tax years until they are all used up.
Here's how this works. Let's say that for 2019, you have $60,000 in taxable income but don't have any capital gains. You can use $3,000 of your $5,000 in capital losses to reduce your taxable income to $57,000 on your 2019 tax return. The other $2,000 can be used to reduce your capital gains or your other taxable income on your 2020 tax return.
One thing that's important to mention is that you can't choose to carry over losses indefinitely. In other words, any 2019 losses that aren't used on your 2019 tax return must be used in 2020 as much as possible. If there's still any left, it must be used in 2021, and so on.