Tax Breaks Ease the Pain Of Investment Losses

And capital-gains rates on winners are as low as 0% for some.

No one likes losing money on an investment, but tax laws offer some relief. Taxpayers who realized investment losses during 2009 can use them to offset capital gains, reducing their tax bill. Plus, they can use losses that exceed capital gains to wipe out up to $3,000 of ordinary income, such as wages. And if they have any remaining losses, they can carry them forward to use in future years.

You must actually sell an investment to realize the loss; paper losses don’t count. And the investments must be held in a taxable account, not a retirement account such as an IRA or a 401(k).

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Mary Beth Franklin
Former Senior Editor, Kiplinger's Personal Finance