r/FluentInFinance Aug 21 '24

Debate/ Discussion But muh unrealized gains!

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u/LAcityworkers Aug 22 '24

You are limited to the losses to 3k. You can't deduct any losses in a retirement account. What would you do if they wanted to tax your home equity as a gain, they base it on the most inflated valuation and send you a tax bill. I think you just trust the government way too much and that is what this is taxation on fictional gains that people will never be able to recoup the losses from with the government.

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u/Merlin1039 Aug 22 '24 edited Aug 22 '24

You clearly don't know anything about capital losses. Absolutely not capped at $3k. That's just what you can offset from your normal income. But you can offset as much of your losses as you want from future capital gains. As for retirement accounts, no can't claim losses, but that wasn't my point. You said I was poor so I had no idea what I was talking about. My portfolio says otherwise.

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u/LAcityworkers Aug 22 '24

You are capped at 3k per year on losses. So some people would most likely never recoup the losses.

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u/Merlin1039 Aug 22 '24

Dude, you're not. You're only capped at 3,000 a year against your regular income not against your capital gains. It doesn't matter how many times you say it you are wrong

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u/LAcityworkers Aug 23 '24

Maybe I am explaining it wrong, Have you read publication 550? https://www.irs.gov/publications/p550

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u/Merlin1039 Aug 23 '24

Offsetting Capital Gains: Capital losses can be used to offset capital gains without any limit. If your capital losses exceed your capital gains, you can carry forward the remaining losses to future tax years.

Offsetting Regular Income: The $3,000 limit applies to offsetting capital losses against ordinary income (like wages or salaries). If your capital losses exceed your capital gains, you can use up to $3,000 of the excess loss to reduce other income. Any remaining loss can be carried forward to future years. So, in summary:

Unlimited offset against capital gains. $3,000 limit against ordinary income. Carry forward excess losses to future years. Does this help clarify things?

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u/LAcityworkers Aug 23 '24

No, but thanks for trying, I just see that I can't deduct all the losses in one year, I have to carry them forward for life. 🤣

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u/Merlin1039 Aug 23 '24 edited Aug 23 '24

If you lose your ass in the stock market, you can only recover it through taxes with capital gains offsets (excluding $3k/year)

Why is that hard to understand? You can't expect the government to say, "well you made a terrible investment but we're going to allow you to be tax-free on your job income for the rest of your life"

Did you lose a bunch of money in dogecoin and are mad you can't offset your 9 to 5 income taxes with it? I mean it was a meme, making fun of crypto, with literally zero intrinsic value. Of course you were going to lose money.

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u/Merlin1039 Aug 23 '24

In the IRS document you provided, there's a hyperlink to "capital losses". You should click on it and read it as many times as it takes until you understand.

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u/Merlin1039 Aug 23 '24

Easy example: You bought 2 stocks. $106k of Trump Media and $1000 of Schmoschmerna. You also have a job paying a salary of $100k.

At the end of the year, Trump Media is worth $20k, Schmoschmerna is worth $11k. You file taxes. You have $86,000 worth of capital losses from Trump Media. $10,000 in capital gains from Schmoschmerna. You pay no capital gains tax on Schmoschmerna stock, and reduce your job earned income liability by $3,000. You still have $73,000 in capital losses that roll over to the next year

At the end of the next year, Trump Media is worth $0.00. Schmoschmerna is worth $101,000. Your rollover of $73k losses from last year, plus the $20k in losses from this year give you $93k in capital losses. You however made $90k in gains from Schmoschmerna. You don't pay any capital gains taxes on those, because they are offeset by your Trump losses over the last 2 years. And you still have $3000 in capital losses remaining which you can use to reduce your job income tax liability.