Long-Term Capital Loss

Long-term capital loss occurs when a capital asset is sold for less than its purchase price after being held for more than 12 months. It can only be set off against long-term capital gains and cannot be used to offset STCG or any other income. 

What is Long-Term Capital Loss (LTCL)?

Long-term capital loss refers to a loss that occurs when you sell an asset after holding it for more than 12 months. It's different from short-term capital gains, as it has unique features, tax implications, and different durations. Long-term capital loss can be set off against future long-term capital gains. 

How to Calculate Capital Loss?

Before calculating capital loss, you must determine whether the loss is short-term or long-term. If an asset is sold within 12 months, it is considered a short-term capital loss. Conversely, if the holding period exceeds 12 months, it will be considered a long-term capital loss. Subtract the asset's selling price from its purchase price to calculate the capital loss. 

For example, suppose Mr. Harshit purchased 100 shares of ABC Ltd. for Rs. 500 per share. It means a total of Rs. 50,000. He held the shares for 2 years and then decided to sell them for Rs. 400 per share, amounting to Rs. 40,000. 

To calculate capital loss:

From the purchase price of Rs. 50,000, subtract the selling price of Rs. 40,000. This will result in a loss of Rs. 10,000. Now, since Mr. Harshit held the shares for more than 12 months, this loss will be considered as a long-term capital loss. 

What is the Difference Between Short Term vs Long Term Capital Loss?

Short-term capital loss and long-term capital loss differ in a lot of ways. Short-term losses are usually deducted against short-term gains first. Additionally, any excess can be used to offset long-term gains. Conversely, long-term losses are deducted against long-term gains first and then against short-term gains. Any remaining losses can be used to offset ordinary income. However, the permitted limit for deduction may be different from short-term losses. The table below lists the key differences between short-term capital loss vs long-term capital loss:

Can You Deduct a Long-Term Capital Loss?

The IRS allows you to deduct and carry over any capital losses to the next tax year. You can only claim the lesser of $3,000 and $1,500 if you are married and filing separately. Alternatively, you can also claim your total net loss in a given year. This can be done in every subsequent year until the loss is fully recovered.