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March 14, 2009

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Nato

"generally speaking, if you get a 50% return on your investment, you have to pay taxes on that, but if you take a 50% loss, you don't get a reverse tax from the government to offset that."

I'm not sure what you mean. With ordinary investments you can generally claim capital losses on schedule D. There's a limit that one can use per year ($3k last I checked) but the excess carries over from year to year indefinitely.

Nathan Smith

Well, thanks for the info. But a $3k limit isn't going to go very far if we're talking about corporate or any large-scale investor. I think the argument stands.

Nato

I think corporate/institutional investors have very different rules, which is why so many folks do things like incorporating themselves. That said, there are surely extra costs for stuff like that, so I'll grant the point in the general.

nato

One more thing - the 3K limit isn't as limiting as all that, if one does eventually expect to make capital gains larger than the current loss, since the overage can be applied against future gains. From that perspective the losses even to very heavy investors are inflation plus some time value, not the majority of overage that would take a long time to write off. If anything, the limit probably pushes equity investors to continue taking on risk after a loss so that they can use their carry forward as soon as possible.

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