Question

This question is about deductions for adjusted gross income. According to my textbook (southwestern individual income taxes 2019), “excess capital losses” is considered a deduction for AGI. Does this mean business capital losses or personal capital losses (such as losses on personal property - a personal use car )?

Also how do I know when a deduction is For AGI or From AGI? Is there a foolproof way to tell

Answer 1

All capital gains and losses are included in your adjusted gross income. That is, personal property losses and loss on cars are also included.

A capital gain increases your income on your tax return, a capital loss counts as a deduction. A capital loss can be used to offset your capital gains, and thus your capital gain tax burden. For example, if you sell two stocks in a year, one at a $1,000 profit and the other at a $500 loss, you will report a net capital gain of $500 and only pay the capital gains tax on $500.

If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately. If your loss is more than that annual limit, you can carry over part of the loss into the next year and treat it as if you incurred it that year, according to the IRS.

conclusion

If it is a capital gain then add it to the AGI. If it is a capital loss then deduct it from the AGI.