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Financial Planning / Tax Strategies


Subject:  Re: Capital Loss Deduction and Strategy? Date:  4/18/2000  11:42 AM
Author:  TMFExRO Number:  34694 of 127747

<< It seems to me that this greatly reduces risk because you are guaranteed (and this is the area I am trying to confirm) to not lose all of this money due to the fact that even a complete loss of this investment will reduce your AGI by $2000, which, in turn, will result in less taxes owed or a greater refund. Obviously, the impact and the efficacy of this approach depends upon your tax bracket. >>

Excuse me, but the investment performance has just a touch to do with the efficacy of this approach. Let's say you're in the top (39.6%) Federal bracket and have the maximum deductible $3,000 loss. You've saved $1188 in taxes, and it ONLY cost you $3,000. Keep up this cutting-edge strategy long enough, and you'll go broke. Repeat after me: my investment strategy is to INCREASE the value of my investments. If you're paying taxes through the nose, you've got money coming out the wazoo.

Yes, I'm being a bit tongue in cheek here, because, as you note, the presence of the capital loss deduction does somewhat mitigate the loss. It does not eliminate it, however, and far too many people make bad investment decisions because they're trying to reduce taxes. I don't want you to be one of them.

Phil Marti
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