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. Ordinary Income

    Income received that is taxed at the highest rates, or ordinary ...
  4. Recognized Loss

    When an investment or asset is sold for less than its purchase ...
  5. 1040 Form

    The standard Internal Revenue Service (IRS) form that individuals ...
  6. Section 1231 Property

    A tax term relating to depreciable business property that has ...
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. Can I get a tax credit from conducting research and development?

    It is possible for a company to qualify for a research and development tax credit for conducting research and development. ... Read Full Answer >>
  3. How does a qualifying widow obtain widow's allowance?

    The requirements that a widow must meet to obtain a widow's allowance include having a child who is claimed as a dependent ... Read Full Answer >>
  4. What is an IRS letter audit / audit by correspondence?

    Every year, the Internal Revenue Service (IRS) sends numerous notices to taxpayers. Letter audit, or audit by correspondence, ... Read Full Answer >>
  5. When might an abatement be granted by the IRS?

    The Internal Revenue Service (IRS) frequently imposes interest and penalties due to the late filing of a tax return, underpayment ... Read Full Answer >>
  6. What are the advantages and disadvantages of capitalizing interest for tax purposes?

    The advantages and disadvantages of capitalizing interest for tax purposes lie in a company's ability to manage or manipulate ... 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. Economics

    What is a Resident Alien?

    A resident alien is a foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship.
  4. Taxes

    10 Little Known Ways To Reduce Your 401(k) Taxes

    These clever strategies will help you hold onto your money – so you'll have more available for your retirement.
  5. Taxes

    IRS Refund Lost? Here's What to Do

    Don't panic. There are a number of reasons your refund might be delayed – and solutions for each.
  6. Professionals

    How Going Green Can Cut Your Taxes

    Investors looking to improve their bottom line via green investing without risk should take advantage of these tax credits.
  7. Investing

    Three Reasons Inflation Isn’t What You Think

    Though U.S. inflation has been firming recently— the core consumer price index rose in April for a 3rd month in a row—prices likely aren’t rising as much.
  8. Economics

    What's a Deductible?

    With insurance, a deductible is the amount of money the insured pays out-of-pocket before the insurance company pays for the loss.
  9. Options & Futures

    How Are Futures & Options Taxed?

    We present a basic introduction to the US tax processes of futures and options.
  10. Taxes

    Explaining Taxable Income

    Taxable income is the net of gross income and allowable deductions.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!