can you write off stock purchases?

Can you write off stock purchases?

Quick summary: can you write off stock purchases — generally no: the cost to buy shares is not an immediate tax deduction. Instead, taxes are determined when you sell (realize) the position, when gains become taxable or losses can be deducted. This article explains how purchase costs are treated for tax purposes, when and how losses can be “written off,” reporting steps, key exceptions, trader-versus-investor differences, wash-sale pitfalls, and practical recordkeeping.

As of 2026-01-21, according to IRS publications and financial reporting, U.S. federal tax rules continue to treat most publicly traded equity positions as capital assets for tax purposes; purchase costs affect cost basis and future gain/loss calculations but are not current deductions. Readers will get clear guidance on forms, rules, and common scenarios — plus practical tips for using tax-loss harvesting while avoiding the wash-sale trap. For crypto traders, comparable principles generally apply but with evolving guidance; consult a tax professional for specifics.

Quick answer — purchase costs vs. losses

Buying stock itself does not produce a tax deduction. The purchase price becomes your cost basis in the security; tax consequences arise when you sell and realize a capital gain or loss. Certain transaction fees and costs commonly associated with buying stocks are treated as basis adjustments rather than immediate deductions.

Key tax principles that govern stock purchases

To determine whether you can deduct costs tied to stock purchases, you need to understand a few core tax concepts:

• Capital asset classification: Most publicly traded stocks are capital assets. Income and losses from capital assets are taxed under capital gains/loss rules rather than as ordinary business expenses.
• Realized vs. unrealized gains/losses: An unrealized gain or loss exists while you hold an asset — it is not recognized for tax purposes until you sell (realize) the asset.
• Cost basis: Your cost basis = purchase price + certain fees and adjustments. Basis determines gain or loss on sale: Sale proceeds minus adjusted basis = realized gain or loss.
• Holding period: The duration you hold an asset affects whether realized gains/losses are short-term (held ≤ 1 year) or long-term (>1 year), which in turn affects tax rates and the order of netting gains and losses.

Are brokerage fees and transaction costs deductible?

When you buy or sell shares, fees such as commissions, transaction charges, and some broker fees generally are not deductible as a current expense for typical investors. Instead, these costs are added to (or subtracted from) the cost basis of your shares, which reduces your taxable gain or increases your loss when you later sell.

Examples of usual treatment:

• Commission when buying: added to cost basis of shares.
• Commission when selling: subtracted from the sales proceeds when computing gain/loss (or equivalently added to basis when combined across trade pairs).
• Account maintenance or custodial fees: post-2017 tax law changes suspended many miscellaneous itemized deductions, so typical investors cannot deduct them currently. Business/trader treatment may differ (see trader vs. investor).

Capital losses — when and how you can “write off” stock losses

You can only claim a capital loss for tax purposes when a loss is realized — that is, when you sell the investment (or it becomes worthless/abandoned). Realized capital losses are first used to offset realized capital gains in the same tax year. If total net capital losses exceed capital gains, up to $3,000 ($1,500 if married filing separately) of the excess loss can be used to reduce ordinary income in the year; remaining unused losses carry forward indefinitely to future years.

Key points on deduction mechanics:

• Realized losses offset realized gains of the same character first (short-term vs. long-term — see next section for netting order).
• If net losses remain, taxpayers may deduct up to $3,000 annually against ordinary income, with the rest carried forward.
• Losses from sales in tax-advantaged retirement accounts (IRAs, 401(k)s) are not deductible on your personal return.

Short-term vs. long-term loss netting order

The IRS requires a specific netting sequence when combining gains and losses:

1. Net all short-term gains and short-term losses.
2. Net all long-term gains and long-term losses.
3. If the net short-term and net long-term results have opposite signs, offset them against each other. The outcome is the overall net capital gain or loss for the year.

Example: If you have $5,000 short-term losses and $2,000 short-term gains, your net short-term is a $3,000 loss. If you also have $4,000 long-term gains and no long-term losses, the net long-term is $4,000. You then offset $3,000 of net short-term loss against part of the $4,000 long-term gain, leaving $1,000 net long-term gain. These mechanical rules determine which tax rates apply to remaining gains.

Reporting and forms (how to claim the write-off)

When you sell a security at a loss and wish to claim that loss, you must report the sale on your federal tax return. Typical reporting steps for U.S. individual taxpayers:

• Report each sale on Form 8949, listing date acquired, date sold, proceeds, cost basis, adjustments (including wash-sale adjustments), and resulting gain or loss.
• Summarize totals from Form 8949 on Schedule D of Form 1040, which shows net short-term and net long-term results and calculates any carryforward amounts.
• Use broker-provided Form 1099-B to obtain sale proceeds and cost-basis information; reconcile that form with your records as brokers sometimes report basis only for covered lots or may omit adjustments.

Handling worthless securities: A security that becomes completely worthless during the year is treated as sold on the last day of the tax year for capital loss purposes; you report the loss on Form 8949/Schedule D as if sold on December 31.

Wash sale rule and timing pitfalls

The wash sale rule disallows a loss deduction if you purchase substantially identical stock or securities within the 30-day window before or after the sale that generated the loss. The disallowed loss is not lost permanently — instead, it is added to the basis of the newly purchased position, deferring the loss until that replacement security is disposed of in a non-wash-sale transaction.

Practical implications:

• If you sell shares at a loss to realize a tax deduction, avoid buying substantially identical shares (or options to acquire them) within 30 days before or after the sale.
• Buying a similar but not substantially identical security (for example, a different company in the same sector or an ETF tracking a different index) can maintain market exposure while avoiding the wash-sale rule.
• For high-frequency traders or active portfolios, wash-sale tracking can be complex; professional tax software or trading records with lot-level tracking are essential.

Tax-loss harvesting strategies

Tax-loss harvesting is the planned sale of losing positions to realize losses that offset gains or up to $3,000 of ordinary income, reducing current-year tax liability while repositioning the portfolio. Effective harvesting balances tax benefits against transaction costs, market exposure, and wash-sale restrictions.

Common approaches:

• Harvest losses near year-end to offset gains realized earlier in the year.
• Use replacement investments that are not substantially identical to avoid the wash-sale rule while maintaining similar market exposure.
• Keep a tax-loss reserve: realize losses in years when you expect higher taxable gains or to smooth tax burdens across years.

Important: Tax-loss harvesting is a tax management strategy, not an investment strategy. Price movement after a harvested sale may affect long-term outcomes. Discuss tax-loss harvesting with a qualified advisor before implementing at scale.

Investment interest and margin interest deductions

Interest paid on funds borrowed to purchase taxable investments (such as margin loan interest) may be deductible as investment interest expense. This deduction is separate from capital loss rules and is limited to your net investment income for the year (investment interest not deductible in the current year can be carried forward).

Key constraints:

• Net investment income generally includes interest and ordinary dividends but excludes tax-exempt interest and may exclude qualified dividends and net capital gains unless you make an election to treat those items as investment income.
• Investment interest is an itemized deduction and subject to the overall limitations that apply to itemized deductions (consult the current tax year rules; the Tax Cuts and Jobs Act changed many itemized deduction interactions).
• Interest on margin used to buy tax-advantaged investments (e.g., retirement accounts) is not deductible as investment interest.

Miscellaneous investment expenses and the TCJA impact

The Tax Cuts and Jobs Act (TCJA) suspended many miscellaneous itemized deductions for tax years 2018 through 2025. That includes common investor expenses such as investment advisory fees, custodial fees, and safe deposit box rental costs when they would otherwise have been claimed as miscellaneous deductions subject to the 2% floor. As a result, most ordinary investors cannot currently deduct these expenses on Schedule A.

Exceptions or alternatives:

• If you qualify as a trader in securities (see next section), you may be able to deduct related expenses as ordinary business expenses.
• Certain investment-related expenses tied directly to investment interest or other deductible items may still be allowable in limited cases.

Trader vs. investor — when expenses become business deductions

The IRS distinguishes between investors (who buy and hold securities primarily for appreciation and investment income) and traders (who trade frequently with the intent to profit from short-term market movements). Traders who qualify as engaged in a trade or business may deduct investment-related expenses as business expenses and may elect mark-to-market accounting under Section 475, which changes how gains and losses are treated for tax purposes.

Typical factors the IRS considers when determining trader status:

• Frequency and level of trading activity (high-volume, regular transactions lean toward trader status).
• Holding periods (very short holding periods indicate trading intent).
• The taxpayer’s primary source of income and whether trading activity is intended to be the principal livelihood.
• Time devoted to the activity — full-time trading activity supports trader treatment.

If you qualify as a trader and make a valid Section 475 mark-to-market election, gains and losses from trading are recognized as ordinary income or loss, wash-sale rules are generally not applicable after the election for securities subject to mark-to-market, and business expenses related to trading may be deductible on Schedule C. The election has significant tax consequences — consult a tax advisor before electing it.

Special cases and exceptions

• Worthless securities: Treated as sold on the last day of the tax year — loss reported on Form 8949/Schedule D.
• Abandoned securities: If you can show abandonment and the security has no value, it may be treated as a loss in the year of abandonment, but the IRS scrutinizes abandonment claims.
• Wash sale basis adjustments: Disallowed loss is added to basis of replacement shares, deferring the deduction until final disposition.
• Casualty or theft losses: Rare for marketable securities and subject to special rules; consult a tax professional.
• Tax-advantaged accounts: Gains and losses in IRAs and 401(k)s are not deductible on your individual return while they remain inside those accounts.

Cost basis rules and basis adjustments

Determining correct cost basis is critical because basis sets your taxable gain or loss at sale. General rules:

• Original basis is typically the purchase price plus associated purchase fees (commissions added to basis).
• Adjustments that increase basis include certain capital improvements for other asset types; for securities, added basis can come from disallowed wash-sale losses.
• Corporate actions: stock splits typically adjust the number of shares and per-share basis; reverse splits reduce share count and increase per-share basis proportionally.
• Reinvested dividends (DRIP plans): each reinvestment increases your basis by the reinvested amount.
• Gifts and inheritances follow special rules: donor’s basis typically carries over for gifts; inherited assets generally receive a stepped-up (or stepped-down) basis to fair market value at the decedent’s date of death (or alternate valuation date).

For full technical detail, consult IRS Publication 551 (Basis of Assets) and Publication 550 (Investment Income and Expenses).

Application to cryptocurrencies and other digital assets

The IRS has generally treated most cryptocurrencies as property for federal tax purposes. Consequently, realized gains and losses on crypto transactions are typically reported under capital gains rules similar to stocks. However, the tax treatment of crypto has areas of complexity and evolving guidance.

Key notes:

• Purchase cost establishes cost basis for later sale or exchange; buying crypto is not an immediate deduction.
• Realized gains or losses on disposition are reportable; use careful records to track dates, amounts, and basis.
• Wash-sale rule applicability to cryptocurrency remains an area of uncertainty and debate; as of 2026-01-21, no definitive IRS rule extended the wash-sale framework to crypto in the same explicit terms as securities, but taxpayers should exercise caution and consult advisors because enforcement and guidance could change.

Practical steps for taxpayers

Actionable items to manage tax consequences related to buying and selling stocks:

• Keep accurate records of purchase dates, prices, commissions, and any reinvested dividends; retain broker 1099-Bs and trade confirmations.
• Track lot-level information to choose specific lots for sale (FIFO vs. specific identification) and optimize tax outcomes.
• Monitor 30-day wash-sale windows when harvesting losses; consider replacement securities that are not substantially identical to preserve exposure.
• Document worthless security claims and abandonment thoroughly if pursuing such losses.
• If using margin, track margin interest separately and keep receipts; calculate net investment income when claiming investment interest deduction.
• Consider whether your pattern of trading could qualify you as a trader in securities; if unsure, consult a tax professional before making accounting elections.
• For crypto holdings, maintain granular transaction history linking on-chain transfers with taxable events and consult specialized guidance for digital assets.
• Consider using a reputable tax-preparation service or tax software that supports Form 8949 and Schedule D to accurately report sales and wash-sale adjustments.

Bitget users: maintain records from your Bitget trading account and Bitget Wallet for purchases, sales, and transfers. If you need help consolidating trade history, explore Bitget's account statements and tax-reporting features.

Common misunderstandings / FAQ

Q: Can I deduct unrealized losses from stock holdings?
A: No. Unrealized losses (paper losses) are not deductible; only realized losses upon sale or abandonment are recognized for tax purposes.

Q: Are purchase costs the same as deductible expenses?
A: No. Purchase costs form your cost basis. They reduce future gain or increase loss when you sell, rather than providing an immediate deduction.

Q: Can I deduct losses in my retirement account?
A: Generally no. Losses and gains inside IRAs and qualified retirement plans do not generate deductible losses on your tax return while funds remain inside those accounts.

Q: Does the wash-sale rule apply to my crypto trades?
A: Guidance has been evolving. As of 2026-01-21, the IRS has not issued a blanket extension of the wash-sale rule to cryptocurrencies in the same way as securities; however, taxpayers should proceed cautiously and consult a tax professional because rules and enforcement practices can change.

Example scenarios (brief numerical examples)

Example 1 — Loss offsets gains: You buy 100 shares for $50 each ($5,000) and later sell them for $35 each ($3,500). Realized loss = $1,500. If you also realized $1,500 of capital gains on other positions, the loss offsets those gains dollar-for-dollar, leaving no net taxable gain.

Example 2 — Annual ordinary income deduction cap and carryforward: You realize $10,000 net capital loss in Year 1 and have no capital gains. You can deduct $3,000 against ordinary income in Year 1, carry forward $7,000 to future years. In Year 2, if you have $4,000 of capital gains, you can use part of the suspended loss to offset them and still apply remaining carryforward per the netting rules.

Example 3 — Wash sale and basis adjustment: You hold 100 shares bought at $100 each (basis $10,000). You sell them for $70 each to realize a $3,000 loss and buy 100 replacement shares of the same stock within 20 days. The $3,000 loss is disallowed under the wash-sale rule and instead increases the basis of the newly purchased 100 shares by $3,000, so new basis = $10,000 ($7,000 purchase + $3,000 disallowed loss). The loss is deferred until you sell the replacement shares in a transaction that is not a wash sale.

Where to get authoritative guidance

Primary authoritative sources include IRS Publication 550 (Investment Income and Expenses) and IRS Publication 551 (Basis of Assets), plus IRS forms and instructions for Form 8949 and Schedule D. For practical explanations, reputable financial education sources such as well-known broker-dealer resources and financial institutions provide summaries and examples. Always consult a qualified tax advisor for personalized guidance because tax details can change by year and individual circumstances vary.

As of 2026-01-21, readers should verify any recent IRS guidance, regulatory updates, or tax-law changes that could affect deductions, wash-sale interpretations, or trader-status rules.

See also

• Capital gains tax
• Form 8949
• Schedule D (Form 1040)
• Tax-loss harvesting
• Investment interest deduction
• Wash-sale rule
• Cryptocurrency taxation
• Trader tax status

References

This article is based on authoritative IRS guidance and mainstream financial-education materials. Key references include IRS Publication 550 (Investment Income and Expenses), IRS Publication 551 (Basis of Assets), IRS instructions for Form 8949 and Schedule D, and general summaries from leading financial education outlets. For any specific tax-year questions or complex situations (e.g., trader elections, mark-to-market accounting, crypto-specific rules), consult the IRS materials and a qualified tax advisor.

Bitget reminder: for efficient recordkeeping, export your Bitget trade history and Bitget Wallet transactions when preparing tax reports. Explore Bitget's account reporting tools to streamline tax-time documentation.

Further exploration: If you want help preparing your tax report or consolidating trade history from Bitget, consider contacting a tax professional who is familiar with securities and digital-asset taxation. Manage records proactively to make year-end reporting smoother.