You are not taxed on your proceeds you are taxed on the net gain/loss. If a loss, there is no tax but a deduction. I do not want to speak badly of H&R Block, but the information as you are re-iterating it to me is incorrect. I really do not understand what they were trying to say to your friend. Did he file with H&R Block? Is he sure the individual at H&R Block entered the information correctly?
