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Capital gains loss rules our wonderful government imposed on us: IRS says $3000/yr max. So, if you lose $9000 one year, you're allowed to deduct it over 3 yrs. If you lose $90k then... move to Belize.

I have been unable to find information on whether this rule is different if you own an LLC or Inc or any other type of entity. Anyone know?

It would be absurd for a Bank or investment company to lose Billions of Dollars one year and make a few millions the next, and yet, still have to pay the tax for the new year income.

I can see how the IRS is pushing around the little guy (i.e. all of us small time investors) but to think that Wall Street hasn't lobbied against this rule being applicable to them sounds impossible. They already don't pay the self employment tax and they can claim long term capital gains on regular employment as money managers (oh, and these rules apply to us to, so Thank you Wall Street).

Funny how when you make money IRS wants you to pay the tax "Right Now" but when they owe you money they say "We'll pay you later".
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Don't bother with LLC or Incorporation. Any amount of the loss can be used to offset capital gains. What you need to do is have gains to use up the losses. Any amount of losses can be applied against gains.
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vkg is right. You can use an unlimited amount of capital losses against capital gains.

I have been unable to find information on whether this rule is different if you own an LLC or Inc or any other type of entity. Anyone know?

An LLC will depend on how it's taxed. For corporations, the rules are worse. No net capital losses at all. They've got to wait until they have a capital gain to use their losses.

I can see how the IRS is pushing around the little guy ...

While the IRS may have some issues, your complaints need to be directed to Congress. They set the laws. The IRS just enforces them.

... but to think that Wall Street hasn't lobbied against this rule being applicable to them sounds impossible.

The rule is generally applicable to Wall Street firms and virtually every other business as well. However, when a brokerage owns stocks, they are often inventory instead of capital assets. Even you could hold stocks as inventory. It's not easy, and I highly recommend against arranging your affairs to make it so, but it is possible.

--Peter
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Don't bother with LLC or Incorporation. Any amount of the loss can be used to offset capital gains. What you need to do is have gains to use up the losses. Any amount of losses can be applied against gains.

Well, in theory that's great news. But, there are years where the losses more than exceed the gains, and for a lot more than $3000. Is there anything else better than simply deducting a mere $3000 a year?
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Is there anything else better than simply deducting a mere $3000 a year?

Not unless you're a "trader" (term of art) who has made a mark to market election. I think this is what Peter was alluding to in his response. You can read about it in Publication 550.

Like Peter said, probably not a good idea, and definitely not to be done without first consulting with your own tax advisor.

Phil
Rule Your Retirement Home Fool
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...Any amount of the loss can be used to offset capital gains. What you need to do is have gains to use up the losses. Any amount of losses can be applied against gains...

I understand from the above that if I loose 9K in 2009 and have no gains, I can only write off 3K. But in 2010 - if I gain 10K, I can balance 6K of the outstanding looses from 2009 against the 10K and only pay on 4K of net gain ?

Is this correct ? It seems too simple.

math999man
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I understand from the above that if I loose 9K in 2009 and have no gains, I can only write off 3K. But in 2010 - if I gain 10K, I can balance 6K of the outstanding looses from 2009 against the 10K and only pay on 4K of net gain ?

Is this correct ?


Yep, that's how it works. If you look at Schedule D you'll see that any carryover from the prior year becomes part of this year's reconciliation.

Phil
Rule Your Retirement Home Fool
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No matter if the losses are long or short term - they get applied to whatever gains are made (long or short) ?
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No matter if the losses are long or short term - they get applied to whatever gains are made (long or short) ?

Eventually. Do take a look at Schedule D. This is one of those situations where a picture truly is worth 1,000 words.

Phil
Rule Your Retirement Home Fool
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No matter if the losses are long or short term - they get applied to whatever gains are made (long or short) ?

The losses do retain their character as long or short term. So the loss carryovers will offset their own kind first (long term carryover offsets long term gains, short term carryover offsets short term gains), but then they will offset whatever gain remains.

In effect, the capital loss carryovers act just like an additional current year loss. They just get tossed into their appropriate pile and netted out.

Here's a pretty ancient post I wrote explaining the process of netting capital gains and losses. The only caveat is that the tax rate on long-term gains has changed since then. Otherwise, the methodology is still correct. http://boards.fool.com/netting-capital-gains-and-losses-1172...

--Peter
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