What is the impact on the taxpayer if they sell a stock for less than its cost basis?

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When a taxpayer sells a stock for less than its cost basis, they incur a capital loss. This capital loss can be used to offset any capital gains the taxpayer may have during the same tax year. By utilizing these losses against gains, taxpayers can effectively reduce their taxable income, potentially resulting in lower overall tax liability.

In addition, if the capital losses exceed the capital gains for the year, the taxpayer may use the excess loss to offset other types of income up to a certain limit, and any remaining losses can often be carried forward to future tax years. This makes the ability to incur a capital loss significantly beneficial for the taxpayer in managing their tax burden.

Other choices do not accurately represent the tax consequences of selling a stock at a loss. For instance, receiving a refund of taxes paid or being taxed at a higher rate does not apply in this scenario, and asserting that there is no tax impact would overlook the important role of capital losses in offsetting gains.

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