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Author: AZBJ One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121180  
Subject: Net Long Term Gain and Loss Date: 12/24/2000 5:14 PM
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Having a hard time getting a grasp on the tax situation. Would welcome anyone who can help me figure it out.

My accountant says there is no reason to sell any of my losers because I have left overs from last year (carried over $3000 amounts)

What I'm having a hard time understanding, is if my sells minus my losses come out to gains, wouldn't it still be to my advantage to dump more LOSERS now?

Let's say I had a LTCG of $20,000.
STCG of 10,000.
LTCL of - 500.

That would give me $29,500 total income plus I have other income of $3500.00 making a total of $33,000.00.

Or let's say I had LTCG of $80,000.
LTCL of -10,000.
STCL of -40,000.

That would give me a total income of $30,000.

Why wouldn't it be to my advantage to sell a loser. Would I want to sell a LTCL or a STCL?

These are NOT my real figures, just round numbers to help me get a grasp. I've read all the articles in the tax section and my mind is going around in circles.

Thanks for any help,
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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43351 of 121180
Subject: Re: Net Long Term Gain and Loss Date: 12/24/2000 6:28 PM
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Your accountant has said your carried-forward capital losses cancel your capital gains. If this
is the case, taking more losses just carries forward to next year and don't do you any good this year.
Therefore, to sell now is an investment decision, not a tax decision.
The market has taken a beating. Next year we will
have a new president, probably the Fed will lower interest rates, and the market will like both.
Given the scenario you have painted, you will get a better price after the first of the year.
Next week will be nuts. Many people taking tax losses, no partcular news, and a lot of traders taking a holiday. Low volume, a lot of volatility. But after the first of the year things should perk up.
Lots of luck Chris

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Author: AZBJ One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43354 of 121180
Subject: Re: Net Long Term Gain and Loss Date: 12/25/2000 12:30 AM
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But after the first of the year things should perk up.

Thanks, Chris. I'm hoping it will do just that.

b.j.


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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43356 of 121180
Subject: Re: Net Long Term Gain and Loss Date: 12/25/2000 2:32 AM
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These are NOT my real figures, just round numbers to help me get a grasp. I've read all the articles in the tax section and my mind is going around in circles.

I think part of the problem is that you're not working with your numbers. Your accountant appears to be telling you that your capital loss carryover from 1999 is enough to wipe out your 2000 capital gains. Is that the case?

TMF ExRO
Phil Marti

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Author: AZBJ One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43357 of 121180
Subject: Re: Net Long Term Gain and Loss Date: 12/25/2000 11:39 AM
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Your accountant appears to be telling you that your capital loss carryover from 1999 is enough to wipe out your 2000 capital gains. Is that the case?

See, that's what I don't understand. If, as in my examples, my gains are $30,000, my carryover would lower my total gains. Wouldn't that at least lower my taxes due and maybe even put me in a lower bracket?

b.j.

Thanks for answering!


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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43376 of 121180
Subject: Re: Net Long Term Gain and Loss Date: 12/26/2000 1:23 AM
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See, that's what I don't understand. If, as in my examples, my gains are $30,000

I probably shouldn't be working the boards, because I'm tired and cranky, but would you please stop what-iffing and answer my question? We'd really like to help, but right now you're asking for confirmation of what your accountant has told you, but you won't tell us exactly what he told you and what your numbers are so we can verify or rebut.

So, please tell us

1. What your capital loss carryover from 1999 is;

2. What your year 2000 realized capital gains and losses are;

3. What stock transactions you're contemplating (e.g. a sale for a long-term loss of $5,000);

4. What you asked your accountant; and

5. What he told you.

TMF ExRO
Phil Marti

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Author: AZBJ One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43382 of 121180
Subject: Re: Net Long Term Gain and Loss Date: 12/26/2000 10:38 AM
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I probably shouldn't be working the boards, because I'm tired and cranky, but would you please stop what-iffing and answer my question? We'd really like to help, but right now you're asking for confirmation of what your accountant has told you, but you won't tell us exactly what he told you and what your numbers are so we can verify or rebut.

Geez, Phil. If I wanted to be grumped at, I could have asked my accountant for the 100th time.

1. What your capital loss carryover from 1999 is; He did not say an amount. I would assume
it would be between $1.00 and $3000.

2. What your year 2000 realized capital gains and losses are; As I stated in my original post:
LTCG of $80,000.
LTCL of -10,000.
STCL of -40,000.
net capital gains/losses $30,000.

3. What stock transactions you're contemplating (e.g. a sale for a long-term loss of $5,000);
That would be the question - I have losses that range from two or three thousand up to fifty. If I sold a LTCL of $10,000, would that lower my income to $20,000 or $20,000. - the caryover?

4. What you asked your accountant; Since I have a carryover of loss from last year, is there any reason to dump some of my losers?

and

5. What he told you. "Not really."

Cheer up! "what-iffing" is a perfectly reasonable exercise when planning taxes.

Regards,
b.j.





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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43400 of 121180
Subject: Re: Net Long Term Gain and Loss Date: 12/26/2000 3:30 PM
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I think you need to get square with your accountant as to the amount of your 1999 carry over losses. From your original question I inferred that you have enough being carried over that there is no point in selling any others since it wouldn't affect your taxes anyway.
If we get bad data we give bad answers.
Best wishes, Chris

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Author: AZBJ One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43406 of 121180
Subject: Re: Net Long Term Gain and Loss Date: 12/26/2000 5:06 PM
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Chris, you said..Your accountant has said your carried-forward capital losses cancel your capital gains. If this is the case, taking more losses just carries forward to next year and don't do you any good this year.
That true if I had a loss this year. But if I had a CG 2000 they can only minus the $3000 carryover to that, right?

Phil, you said..Your accountant appears to be telling you that your capital loss carryover from 1999 is enough to wipe out your 2000 capital gains. Is that the case?
If I can only deduct $3000 carryover, how can that wipe out a $30,000 CG for 2000?

Well, obviously I'm not making myself clear. Basically, what I'm asking is:

1. Subtracting my Cap Gains from my Cap Losses is the amount I can claim as income, right?

2. If I show a 2000 capital gain of $30,000, I can subtract a $3000. carryover from that, right?

3. That would make my NET 2000 capital gain $27,000, right?

4. If I sold a $10,000 capital loss, would that make my income $17,000?

If # 1. is not a true, then the rest are moot.

b.j.



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Author: RooCat Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43417 of 121180
Subject: Re: Net Long Term Gain and Loss Date: 12/26/2000 7:20 PM
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But if I had a CG 2000 they can only minus the $3000 carryover to that, right?

No, your entire CL carryforward may be used against your CGs for this year. The $3000 limit is what you can use against oridnary income.

1. Subtracting my Cap Gains from my Cap Losses is the amount I can claim as income, right?

Yes

2. If I show a 2000 capital gain of $30,000, I can subtract a $3000. carryover from that, right?

No, you can use your entire capital loss carryover against it and, assuming it is that high, can even use $3000 against ordinary income.

3. That would make my NET 2000 capital gain $27,000, right?

No, see previous 2 answers.

<I?4. If I sold a $10,000 capital loss, would that make my income $17,000?

No, you have the concept wrong. See first answer.

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43418 of 121180
Subject: Re: Net Long Term Gain and Loss Date: 12/26/2000 7:27 PM
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Geez, Phil. If I wanted to be grumped at, I could have asked my accountant for the 100th time.

I know, and I apologize. I knew I should have waited until I felt better, but impulse prevailed. Let's see if I can make amends.

1. What your capital loss carryover from 1999 is;
He did not say an amount. I would assume
it would be between $1.00 and $3000.


This makes me think we may not be talking about a carryover. If you had one, it could be as small as $1, but there is no limit to the carryover amount. For a general overview of netting capital gains and losses, including how carryovers work, I recommend this article in the FAQ: http://www.fool.com/school/taxes/2000/taxes000107.htm.

As to your specific situation, in order to make your 2000 decisions, you're going to need to know the amount of your carryover from 1999. You should find it in the supporting paperwork with your copy of your return. There is a captial loss carryover worksheet, not filed with the return, that your preparer should have included with your copy. If it's not there, look at line 17 of your 1999 Schedule D. If line 17 is a loss, your carryover to 2000 is that loss reduced by the $3,000 you took on your 1999 return.

2. What your year 2000 realized capital gains and losses are;

As I stated in my original post:
LTCG of $80,000.
LTCL of -10,000.
STCL of -40,000.
net capital gains/losses $30,000.


3. What stock transactions you're contemplating (e.g. a sale for a long-term loss of $5,000);

That would be the question - I have losses that range from two or three thousand up to fifty. If I sold a LTCL of $10,000, would that lower my income to $20,000 or $20,000. - the caryover?


Having read the article in the FAQ and found out what your carryover was, you should now be able to do this calculation. The carryover and your realized year 2000 capital losses both reduce your taxable year 2000 capital gains. There is no limit to the amount of losses that can be applied against gains.

4. What you asked your accountant;

Since I have a carryover of loss from last year, is there any reason to dump some of my losers?

and

5. What he told you.

"Not really."


To which my response would have been "Why?" I offer this not to be smart, but to point out that people with a lot of knowledge in a field tend to forget that they're not always talking to experts. Knowledge that they assume is universal is often highly specialized. I run into this problem with doctors all the time, and trying to take care of my 89-year old parents means a lot of doctors. I find myself asking "why," not to mention pointing out that I'm medical abbreviation challenged, a lot. Remember, you're paying the bills and shouldn't be satisfied until you get an answer you understand.

I'm still not totally sure what your specific question is, but I have a couple of ideas. In general, understanding how gains and losses are netted should clear up for you the effect on taxable income if you go ahead and realize some losses in 2000.

I recall you mentioned brackets in one of your posts, and I suspect that may be the root of the "not really" response to your question. If you'd like to torture yourself you can see how tax is calculated by walking through Part IV of Schedule D. In oversimplified overview, you start with taxable income, which you separate into ordinary income and net long-term capital gains. If your taxable ordinary income takes you above the 15% bracket (in year 2000 $26,250 on a single return and $43,850 on a joint return), all of your net long-term capital gains will be taxed at 20%. It doesn't matter if it's $1 or $1 gabiliion.

Thus, if your non-capital gain income takes you above the 15% bracket, your tax rate will not be affected by the size of your net long-term gains. Obviously, the more gains you have, the more tax you pay, but at the same 20% maximum rate. This may have been the question your accountant was answering.

On the off chance this is starting to make sense, I'll throw in Alternative Minimum Tax (AMT). At some level of capital gains you could have AMT issues. That is a specific question to ask your accountant: "Do I have an AMT problem and, if I do, how much capital losses do I have to take to get out of it?"

Cheer up! "what-iffing" is a perfectly reasonable exercise when planning taxes.

It's good for learning, but it's lousy for planning. At some point you need to work with your numbers. For general explanations of lots of things, with lots of examples, I highly recommend the FAQ.

I hope we're getting things sorted out for you. Please feel free to come back for clarification if you need it. I promise not to bite. Again.

TMF ExRO
Phil Marti

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Author: AZBJ One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43422 of 121180
Subject: Re: Net Long Term Gain and Loss Date: 12/26/2000 7:50 PM
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Ah ha! See, I thought you could only deduct the $3000. loss amount from your gains. Which changes the whole picture. Back to the drawing board!

Thanks for your answer Phil. And you too RooCat. I will check out the other items you talked about.

Regards,
b.j.


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