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mbrown1004 · Jan 4, 2010, 07:56 PM

I took a loss on my mutual fund investments last year which I liquidated in 2009. The previous years before that I paid tax on the profits as I went. Now that I have more than a 50% loss can I deduct it from my income tax?

MLSNC · Jan 5, 2010, 08:26 AM

The loss on the sale of your mutual funds should be deductible, but capital losses over capital gains are limited to $3,000 per year, that is to say only $3,000 of net capital losses can be used to reduce you other income. Any loss in excess of $3,000 is carried over to subsequent years.

ebaines · Jan 5, 2010, 09:26 AM

Mbrown1004: Please clarify what you mean by "I paid tax on the profits as I went." You should have paid taxes on income and capital gain distributions from the funds, and also any capital gains you realized upon sale of fund shares. Is that what you mean? If so, then no - the income tax you paid does not raise the cost basis of the remaining shares. The end of year statement from your investment house will probably tell you what your cost basis is for the shares you sold in 2009.

mbrown1004 · Jan 5, 2010, 05:58 PM

Thanks for the replies. I guess I was paying tax on the interest made without withdrawing any funds. I still am not fully clear whether or not I am able to claim a loss, or if I can only claim a $3,000 loss. Aside from the worth of the stocks at any given point lets say I invested $20,000 originally. As stocks were good I bought more stocks with $10,000. When I sold all of the stocks I ended up with $18,000. There was a loss of $12,000 of originally earned taxed income. The peak worth of the stocks were $40,000. Does this make any sense?

MLSNC · Jan 5, 2010, 07:15 PM

Based on the data shown your loss would be $12,000, but only $3,000 of the loss would be shown on page 1 of the 1040 from the Schedule D. $9,000 would be carried over to 2010 (assuming no other capital gains/losses). Don't forget your basis ($30,000 per the example) should include dividends that were reinvested. The $40,000 peak value is not used.

mbrown1004 · Jan 6, 2010, 06:18 AM

Thank you very much... I appreciate your replies. You both were very helpful.