3K every year until you write it all off is not.
It is. For most people who may have capital losses, 3K is a pittance. It is one of the most unfair provisions in the code. You gain - we will tax all you got. But you lose - and you can’t write it off.
To be fair, the gains are taxed at 15% (unless the filer is in the upper brackets, and can be as low as 0%) and the write-off is at your marginal rate (which is always higher, I believe).
That said, I would personally be open to increasing the allowed cancellation of ordinary income in exchange for closing the capital gains step-up basis at death.
Except that if you are gaining you can offset all the gains. Look, you cant have it both ways. Either some non-investor has a one time loss, which he can then use nicely every year until he uses it all up.
Or an investor has a loss, in which case he use it to offset his gains that year or the next.
And for now the sixth fucking time- you CAN WRITE IT OFF. Stop saying you can’t.
A $100,000 capital loss will take 33 years to write off at that rate. If the investor is aged 60, that is longer than he is likely to live. Even a $50,000 loss would take 17 years to write off. It is a pittance.
Practically - you can’t except for a pittance.
I’m with you on this. I would have no problem increasing the $3k somewhat.
OTOH, it also presupposes that the investor has absolutely no other investments that will earn any money over that stretch of time. I think it would be… unusual… for an investor to lose a sum like $50k and have no other investments whatsoever.
I would also have no problem applying capital losses against regular income, if the tax treatment were the same. But, if you want to apply losses against income taxed at 35% while gains are taxed at 15-20%, I’m not sure how that makes sense.
I had a year where I earned X in dividends and lost Y in investments where Y>X by some margin and both were significant sums. So there was a double whammy of losing $ on the market and paying a chunk of change in taxes.
Only long term capital gains are taxed at “15-20%” (as explained in previous posts, 23.8% at top really). Short term cap gains are taxed as regular income. So why not allow applying that against regular income?
Except that most investors have a gain somewhere, or they aren’t’ all that good at investing, now are they?
No problem. Please Paypal me that "pittance’. 
I had such a loss, and it saved me some $800 a year, which is not chump change by any means. And if it* is* chump change to you, then why worry about a loss anyway?
They will have a gain somewhere, but it’s the timing. You have to pay taxes on your income now, not in the future, and the offset would lower the taxes now. Yes, in the future, eventually, at some point, the offset will be realized, but that doesn’t help me now if I am faced with a lot of taxes, does it?
Sure it does- cause* right now*, you have a lot of income. If you have a $100K gain, you have at least that. So if you have to pay 28% of that in taxes- big deal. Many of us work hard all year long and dont earn $100K, but still have to pay taxes on all our income.
Not if you also have $200K in a capital loss.
Someone is talking past someone here… If you have $100k in capital gains (long or short term) and $200k in capital losses you have no capital gains tax due in that tax year. You also offset $3k of ordinary income (and $97k to carry forward).
So any tax due would be tax due on your earned income. Which, obviously, you earned during the year and thus either had deducted from payroll or made estimated payments through the year. There is no “tax due” that you don’t have the money to pay.
Now, obviously lots of folks (generally those with lots of investment income as well as high salaries) would love to be able to harvest capital losses to offset high marginal tax rates. That’s exactly the kind of activity the $3k limit is designed to avoid. You think tax revenues were low in 2008 and 2009? Imagine if everybody could have realized their capital losses and cancelled out their entire earned income! Sure they’d pay capital gains later, but likely at a 15-20% rate, possibly even zero if the harvested the gains during early retirement or low-income years.
Even with the limit on canceling ordinary income, tax-loss harvesting is still pretty much a giveaway to those in the higher tax brackets.
If you have $100K in dividend gains, and $200K in capital losses. (Or $100K in salary and $200K in capital losses, if you prefer). Both cases - you owe taxes on $97K (yeah yeah deductions etc) and losses don’t offset.
Are qualified dividends “earned income”?
Then oddly- you pay* no tax at all on that $100K gain.* **It’s all offset. ** You do get to claim some of that loss vs other income.
Are you for real? Reallocation does not change risk? Do you understand what risk is? Of course it doesn’t avoid the tax. It all gets taxed. Reallocating will likely result in even lower returns than if you kept everything the same after the tax boost.
It’s not to make a point. It’s to manage risk so that it is commensurate with expected returns.
And even if you can’t understand why, I’ll tell that I will change my investment behavior with higher taxes. The on-the-fence items right now are the expansion of the sibling’s (domestic) business, the cousin’s (foreign) business, the margins between the usual pots of securities, bonds, and cash, and saying fuck it and spending cheap euros in Germany for a month this summer. The domestic business is already probably a no-go but would be a definite no. Not having to deal with delayed carryover on Form 1116 makes the foreign investment much more palatable. The other stuff is a mess of taxable and tax-advantaged accounts that I probably need to pay someone to straighten out. And cheap euros look even nicer when there’s less to lose by spending them now.
So that’s one shift that would result. That doesn’t mean raising cap gains rates isn’t the right policy decision. The money has to come from somewhere, and quite frankly I can afford the taxes more now than when I was making $7.50/hour. But let’s not pretend I and others don’t consider returns during the quarterly portfolio review.
Raising the tax rate does not change risk. So reallocation as a response to a tax rate increase is meaningless.
It’s like you’re not following the conversation at all. No, it is not offset. Not if it is income other than capital gains. Like dividends. Or wages. And you pay taxes on $100K (except for the $3K pittance) and you’re saddled with the loss of $200K.
Raising the tax rate decreases returns. If the risk remains the same, then the returns may no longer justify the risk. So reallocate to a lower risk level.
Despite not planning on retiring for 35 or more years, I own bonds and cash. As do plenty of billionaires. I don’t go chasing the highest returns with every last penny. I weigh those returns against their direct risk and my overall portfolio risk.