Question about capital loss
Capital loss?Recently I sold an antique for 12,000 that I had bought for my personal use in 2004 at a cost of 15,000.
In my 2007 tax return, can I treat the sale of the antqiue as a transaction resulting in long-term capital loss?
It is often said that income tax returns are more imaginative than best selling novels. The truth, in both types of documents, is stretched, spun, colored and twisted to make things appear almost unrecognizable. However, new Thailand laws have been developed by the Revenue Department to ensure that capital losses, an area of tax returns rife for unethical deductions, are now fairer. Business legal services in Thailand are also trying to comprehend the effects on their clients.
The Revenue Department in Thailand is now focusing on the Thailand law regarding capital losses, in light of a traditional tax planning technique involving transactions of a circular nature. These circular transactions are entered into by the parties with the main or single purpose of carrying out a series of deals that will generate tax expenditure, eventually.
To be legal under Thailand law, business legal services in Thailand are now advising their clients that the expenditure generated must have the characteristics required in the Revenue Code, that is, it must be spent exclusively for profit or business seeking purposes. Otherwise it will not be considered deductible in calculating income tax for corporations.
An example is where the price of a subsidiary’s shares deteriorates, and a parent company deducts that capital loss of the sale of such shares. This will be allowed provided they are sold at fair market value. If the price they are sold at is lower than market value, the Revenue Department is allowed to revise this up in their tax estimates. However, the motivation of a parent company for engaging in the sale of shares to begin with has bnever really been scrutinized, until now.
A recent revenue ruling of a recent case is being cited by corporate legal services in Thailand. The parent company in this case subscribed to a packet of shares issued by a subsidiary of itself, established to run a mall. When the subsidiary’s business became dormant in the economic crisis of late last century, it owed service fees to the parent company. In order to repay these, the subsidiary increased its capital, and the parent company subscribed to the second lot of shares here. When the debt was repaid, the parent company sold both lots of shares to other companies, at a loss of around 21 million baht.
The Revenue Department ruled in this case that the capital loss attributable to the sale of the second lot of shares, after the debt was repaid, was not allowed as a deduction. This was mainly because iof the parent company’s motivation for selling the shares. It was considered that it was not for genuine investment purposes, but was a blatant attempt to convert bad debt into an investment loss. As it was not spent exclusively for business or profit seeking purposes, it was disallowed.
It seems that the hasty sale of the shares was the aspect of the transaction which gave away the parent company’s intentions. Perhaps if it had waited a while before offloading the shares, it may have been seen as a more legitimate business activity – although perhaps not a wise one.
What business legal advice in Thailand should have told the company to do was to deduct the same amount of expense by following the procedures for bad debt write offs pursuant to the relevant regulation. They should have taken civil action against the subsidiary, with the help of corporate legal services in Thailand, and obtained a court order for the debt to be repaid. Despite the time consuming nature and expense of such a procedure, it would have eventually saved the company money, considering that the deduction was eventually disallowed
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Mike
on April 7 2010
The personal use makes your loss non-deductible.
From the IRS website:
Personal-use property. Property held for personal use is a capital asset. Gain from a sale or exchange of that property is a capital gain. Loss from the sale or exchange of that property is not deductible. You can deduct a loss relating to personal-use property only if it results from a casualty or theft.
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on April 7 2010
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Big Daddy
on April 7 2010
Even if you don't have any income this year to take it against, you'd have to subtract the $3000 from your carryover each year. It's use it or lose it. If you had a $5000 carryover from 2005, and no 2006 income, you could carry the other $2000 over to 2007.
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on April 7 2010
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rails
on April 7 2010
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earthlink
on April 8 2010
hallo
tom p
on April 8 2010
You can go back as far as you want to correct the error, but if you are due a refund, you will only get refunds for tax years 2005 and later (assuming you correct the error before April 15.)
There is a three year limit to receiving refunds for amended returns.
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on April 8 2010
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meow0911
on April 8 2010
The $3,000 limit applies only to offsets against other income. Against capital gains there is no dollar limit. When using the $3k per year you can use it as many years as you have a loss to carry forward; there is no limit.
jpro
on April 8 2010
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on April 8 2010
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on April 8 2010
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robschoening
on April 9 2010
You cannot add a child's capital gain to a parent's tax return. (If you look at the form, it talks about "capital gain distributions" which is a different form of income.)
If your son has $2000 of realized capital gains (as in something was sold), then it goes on HIS tax return, not yours.
You will need to file a 1040 for him with a schedule D .
When you say custodial account, I'm assuming a bank or college account that issues a 1099 at the end of the year, not a tax deferred account like a QTP or ESA.
Tina L
on April 9 2010
You can use up to $3,000 in the losses to offset other income. It won't directly offset the self-employment taxes however, just the net income for income tax purposes.
corpo
on April 9 2010
Is 25 pips what you generally shoot for?
trader
on April 9 2010
You can use losses to offset gains, no matter which way the losses and gains are. Long term losses can offset short term gains, short term losses can offset long term gains, long term losses can offset long term gains, short term losses can offset short term gains, etc.
Net short term gains are taxed at whatever your tax rate is.
Net long term gains are taxed at maximum rate of 15% (5% for those in 10% or 15% tax brackets).
If losses exceed gains you can deduct up to $3,000 in losses per year against other income ($1,500 per year if married filing separately). Any excess would be carried forward to be used in future year at $3,000 per year.
fifty2weekhi
on April 9 2010
Not really. Just take the $3,000 every year against other income — that's mandatory by the way — and hope for a CG windfall someday to use the balance against.
unhappy
on April 10 2010
A capital loss carryover is NOT an itemized deduction. It's an above the line adjustment and applies whether you itemize or not. You do need to file Form 1040 to take it but itemizing or not itemizing isn't a factor.
And no, it is NOT a credit, just an adjustment that reduces your AGI and therefore your taxable income.