Do I Have to File Robinhood Taxes If I Lost Money?

Even if you lost money on your Robinhood investments, you are required to report the transactions on your tax return. The Internal Revenue Service (IRS) considers the sale of a stock or other security a “reportable event,” regardless of the outcome. Filing can also be beneficial, as reporting your losses can lower your overall tax liability.

Understanding Your Tax Reporting Obligation

The core reason for reporting losses is the IRS’s need for a complete picture of your financial transactions. Every time you sell a security, it is classified as a “reportable transaction,” whether you made a profit or incurred a loss. Your brokerage, Robinhood, is required by law to report the gross proceeds from your sales to the IRS on Form 1099-B.

Because the IRS receives a copy of this form, it has a record of your sales activity. If you fail to report these transactions on your tax return, the information will not match, which can trigger IRS notices and potential penalties. Filing a return allows you to provide what you originally paid for the assets, known as the cost basis. This creates a complete record that matches the information the IRS already possesses.

Identifying Losses on Your Robinhood Tax Documents

To begin the reporting process, you must locate your tax documents from Robinhood. The key document is the Consolidated Form 1099, which Robinhood makes available by mid-February in the “Tax Documents” section of your account. This form bundles several 1099s, but the most important for investment losses is Form 1099-B.

Form 1099-B details every sale you made. To identify your losses, look at specific boxes: Box 1d, “Proceeds,” shows the money you received, while Box 1e, “Cost or Other Basis,” shows what you originally paid. If the proceeds are less than the cost basis, the transaction resulted in a capital loss.

The form also categorizes your transactions as either short-term (held for one year or less) or long-term (held for more than one year). This classification is important because the two are treated differently for tax purposes.

How to Report Investment Losses on Your Tax Return

Once you have your Form 1099-B, you transfer this information to the correct tax forms. The process begins with IRS Form 8949, Sales and Other Dispositions of Capital Assets. This form is where you list the details of each stock sale, transcribing the property description, acquisition and sale dates, proceeds, and cost basis.

After detailing all transactions on Form 8949, you will calculate separate totals for short-term and long-term transactions. These totals are then carried over to Schedule D, Capital Gains and Losses, which summarizes the figures to arrive at your net capital gain or loss.

If you have a net capital loss, this figure from Schedule D is transferred to your main tax return, Form 1040. Tax software can often import data directly from Robinhood, which simplifies filling out these forms.

The Capital Loss Deduction

Reporting your investment losses is beneficial because of the capital loss deduction. The tax code allows you to use your capital losses to reduce your taxable income. First, your capital losses are used to offset any capital gains you may have. For example, if you have $5,000 in capital losses and $4,000 in capital gains, the losses can wipe out the gains, so you won’t owe tax on that profit.

If your capital losses exceed your capital gains, you can deduct the excess loss against other forms of income, like your salary. There is an annual limit to this deduction of up to $3,000 against your ordinary income ($1,500 if you are married and filing separately).

Should your net capital loss for the year be greater than the $3,000 limit, the unused portion is not forfeited. It can be carried forward to subsequent tax years as a capital loss carryover to offset future gains or continue the annual deduction.

The Wash Sale Rule

The wash sale rule is a regulation that prevents taxpayers from claiming a tax deduction for a security sold at a loss if they purchase a “substantially identical” security within 30 days before or after the sale. This 61-day window is designed to stop investors from creating an artificial loss for tax purposes while maintaining their investment position.

For instance, if you sell stock at a loss on June 1st and then buy the same stock on June 15th, the wash sale rule is triggered. As a result, you cannot deduct the loss from the June 1st sale on your current year’s tax return. The rule applies to stocks, options, and other securities.

Instead of the loss being deductible, the disallowed loss amount is added to the cost basis of the new, replacement shares. This adjustment postpones the tax benefit of the loss until you sell the new shares. Robinhood’s Form 1099-B often identifies wash sales, but the ultimate responsibility for adhering to the rule across all your accounts rests with you.