Suppose that in 2017 I bought 100 shares of XYZ stock. Would selling all these shares in 2018 for $900 worth of proceeds at a cost basis of $1,000 (realizing a capital loss of $100) increase my 2018 gross income by $900? Does the answer change depending on whether the capital loss is a short-term or long-term capital loss?

Note: I'm asking about gross income, not adjusted gross income (AGI), because I want to know if my gross income is less than my filing threshold.

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    How on earth would one earn money from a loss? – quid Dec 13 '19 at 20:51
  • @quid, by selling selling all 100 shares of XYZ stock, I'd get $900. – ma11hew28 Dec 15 '19 at 21:09
  • That's not an earning. – quid Dec 15 '19 at 22:28
  • OK. Thank you, @quid. To improve the title of my question, I changed "Does the money I earn" to "Do the proceeds I get". – ma11hew28 Dec 17 '19 at 23:20
  • There is no income here; you converted one asset you already owned (stock) into another form (cash). – chepner Dec 18 '19 at 1:43

No. Gross income doesn't include proceeds received from realizing a capital loss, regardless of whether the capital loss is a short-term or long-term capital loss.

Gross income (as defined by Section 61 of the Internal Revenue Code) includes "gains derived from dealings in property", not proceeds. Also, gross income doesn't include capital losses. Chart A of the 2018 instructions for Form 1040 says "gross income includes gains, but not losses, reported on Form 8949 or Schedule D".

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  • Small detail but the gross sales proceeds are included in Schedule D when determining the capital gain/loss. – Bob Baerker Dec 13 '19 at 22:04
  • Thank you. Just to clarify, by "income for tax purposes" and by your other uses of the word "income", do you mean "gross income", as defined by Section 61(a) of the Internal Revenue Code? – ma11hew28 Dec 15 '19 at 21:34
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    @ma11hew28 Yes, since that section refers to "Gains derived from dealings in property", if a sale results in no gain there is no contribution to gross income. – nanoman Dec 15 '19 at 21:46
  • OK. Thank you. So your saying that my gross income would go down by $100? I don't think that's right. – ma11hew28 Dec 17 '19 at 23:10
  • @ma11hew28 I think it's more you have a gross income of x, and capital losses of y (=$100). Depending on the value of x (is it greater than zero, above certain thresholds, and probably other factors), the capital loss (probably up to certain limits) can be used to offset the gross income you pay tax on. – TripeHound Dec 18 '19 at 8:32

by selling selling all 100 shares of XYZ stock, I'd get $900.

By that logic, your 2017 income would have been reduced by $1000.

But that's not how it works. Capital gains and losses are only realized when you sell the asset.

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