Do Investment Losses Exempt One from Paying Zakat?

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I took $150,000 of equity out of my primary residence and invested it in stocks. I lost over $100,000. Do I still add the $50,000 in assets for stocks when calculating my Zakat since I lost so much?

The short answer

Yes, you still must add your remaining stock assets after a loss – even a major loss – to your total currency holdings and pay your yearly Zakat on it at your Zakat Due Date at a 2.5% Zakat rate if those currency holdings at the end of the Zakat year (hawl) remain at or above the nisab threshold, equivalent to 85 grams of gold. (see What Is Nisab in Islam?

Why must I pay after losing so much wealth on my investment?

Growth potential of any Zakatable wealth-type (Zakatable means it is a form of wealth the Prophet, on him be peace, specified as one a Muslim must pay Zakat on) makes it liable to Zakat if it exists in the minimum amount, nisab, where the Prophet, on him be peace, ordered Muslims who possess it to pay Zakat on it. 

Profit and loss are inherent possibilities in all wealth that has growth potential. Whether we gain or lose that wealth doesn’t change its nature as a wealth on which the believer must pay its Zakat. It only changes the amount of Zakat due on it. If loss on it occurs in an amount that reduces our possession of it to a quantity below its threshold nisab sum, then we no longer own enough of it to incur a Zakat obligation on it. 

The investment money came from my home. Isn’t it Zakat-exempt?

No. A Muslim owes no Zakat on the primary residence he or she owns. If a Zakat payer’s wealth remains in a Zakat-exempt wealth-type, no Zakat ever comes due on it. If one converts that Zakat-exempt wealth-type to a Zakatable wealth-type, then one must pay its due Zakat at its specified Zakat threshold, due date, and rate. (What Requirements Qualify Wealth for Zakat?

Are stock holdings Zakatable?

Yes, stocks are a kind of currency and Zakat comes due on them in combination with all one’s currency holdings at the rate and stipulations of money. (See How to Calculate Zakat on Stocks and Investments

Modern Muslim Zakat scholars regard shares and stocks as partial ownership of the capital of a corporation or business entity. 

They define stocks and shares as a capital contribution that reaps profit and risks loss. It is a wealth-form that holds a market value that may rise or fall. Hence, stocks are Zakatable.

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