- 1). Sell any stocks where the current fair market value is less than your original cost or other basis in the stock. Losses from the sale of stock cannot be claimed as a deduction for federal income tax purposes unless the loss is realized, meaning that the stock has been sold.
- 2). Input the required information for each stock sold on Internal Revenue Service (IRS) Schedule D, Capital Gains and Losses, on IRS Form 1040, U.S. Individual Income Tax Return. The IRS requires you to input a brief description of the stock sold (such as "100 shrs. of ABC Corp."), the date you acquired the stock, the date you sold the stock, the proceeds from the sale of the stock, and your cost or other basis in the stock.
- 3). Calculate your loss by subtracting your cost or other basis in the stock from the sales price of the stock. Enter this result in the "gain or (loss)" column of Schedule D.
- 4). Aggregate all short-term capital gains and losses and all long-term capital gains and losses by adding the numbers in the "gain or (loss)" column for each category. This step allows you to offset your capital losses against any capital gains.
- 5). Carry up to $3,000 of any remaining loss after aggregating all capital gains and losses for each category to page 1 of IRS Form 1040 and input the loss in the 'capital gain or (loss)' line of the form. This amount is totaled with all forms of income and reduces both your computation of taxable income and income tax due for the tax year.