Ordinary Loss

AAA

DEFINITION of 'Ordinary Loss'

Any loss incurred by a taxpayer that is not considered a capital loss. Ordinary losses can stem from many causes, including casualty and theft. Ordinary losses that are larger than a taxpayer's gross income for the year can leave the client with zero taxable income on their 1040.

INVESTOPEDIA EXPLAINS 'Ordinary Loss'

Ordinary losses are not subject to the $3,000 annual limit that is imposed on capital losses; they can be for any amount. Business owners who fail to make a profit for the year can declare an ordinary loss on their returns. Ordinary losses are netted against ordinary income, which is taxed at the taxpayer's highest marginal tax rate. Ordinary losses can therefore offer the taxpayer greater tax savings than long-term capital losses.

RELATED TERMS
  1. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  2. Casualty Insurance

    A broad category of coverage against loss of property, damage ...
  3. 1040 Form

    The standard Internal Revenue Service (IRS) form that individuals ...
  4. Recognized Loss

    When an investment or asset is sold for less than its purchase ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has ...
  6. Ordinary Income

    Income received that is taxed at the highest rates, or ordinary ...
RELATED FAQS
  1. How are realized profits different from unrealized or so-called "paper" profits?

    When buying and selling assets for profit, it is important for investors to differentiate between realized profits and gains, ... Read Full Answer >>
  2. Is progressive tax the same thing as marginal tax rate?

    A marginal tax rate is a form of a progressive tax. Any progressive tax is a tax created based on the amount of income an ... Read Full Answer >>
  3. What are the pros and cons of a progressive tax policy and who benefits the most ...

    Those who oppose a progressive tax hierarchy are likely to be those who pay more taxes when such a policy is in place. A ... Read Full Answer >>
  4. Do all taxes create deadweight loss?

    Taxes create deadweight loss because they prevent people from buying a product that costs more after taxing than it would ... Read Full Answer >>
  5. What's the difference between regressive and progressive taxes?

    The U.S. federal tax system and local and state tax systems are complex in that they combine progressive, regressive and ... Read Full Answer >>
  6. What are the differences between regressive, proportional and progressive taxes?

    Tax systems fall into three main categories within the tax code: regressive, proportional and progressive taxes. Regressive ... Read Full Answer >>
Related Articles
  1. Taxes

    Deducting Disaster: Casualty And Theft Losses

    If you've been a victim, your losses may be deductible. Find out how.
  2. Active Trading

    Seek Out Past Losses To Uncover Future Gains

    Tax loss carry-forwards can help reduce the tax burden of owning a profitable fund.
  3. Taxes

    Missed The Tax Return Deadline? Here's What To Do

    Most important: Do it now.
  4. Taxes

    Are Taxes the Solution for Income Inequality?

    Income inequality continues to increase. Why? And are taxes the solution?
  5. Retirement

    Some Tax Considerations For Your Retirement Income

    Even if you don’t plan to retire, it’s still a good idea to think ahead about where to live, your income and how it all interacts with Social Security.
  6. Taxes

    What is Withholding Tax?

    Withholding tax is the income tax federal and state governments require employers to withhold from employee paychecks.
  7. Retirement

    Don't Make These Top 10 Mistakes On Your Roth IRA

    Don't lose out on the benefits of a Roth by contributing too much, breaking rollover rules or making other avoidable errors.
  8. Bonds & Fixed Income

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  9. Options & Futures

    Options and Roth IRAs: Do's and Don'ts

    A breakdown of the do's and don'ts of trading options in a Roth IRA.
  10. Taxes

    OK, So I'll Be Smarter Next Tax Time

    5 tax resolutions to start on right now for a smoother tax return next April 15.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center