It is not pleasant to talk about losses. But when it comes to tax, losses can be a hidden goldmine. There are four basic types of tax losses:
Capital loss:
Generally, capital loss arises from the sale of capital property. Fifty percent of the capital loss can be used to reduce the capital gains in the year of occurrence or can be carried back three years or carry forward indefinitely to reduce future capital gains.
Business investment loss:
This type of loss generally arises from the disposition of shares or debt owed by a small business corporation. Similar to capital losses, their claim is limited to fifty percent of the loss. However, unlike a capital loss, which can reduce only capital gains, a business investment loss can be applied against other income.
Business loss:
Individuals that operate a sole proprietorship or partnership may claim business losses. They can be applied in the current tax year against other source of income. Excess losses can be carried back three years or forward for seven years.
Real estate rental loss:
When you rent part of or all of a residential or commercial property, you may incur losses after deducting allowable expenses. These losses can be utilized similar to business losses.
Loss in business is depressing. However, it is wise to use the rules to get some relief so all is not lost!
