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Reader Comments: Cannot Offset Long-term Capital Losses


Thanks very much for all your comments on the earlier post about the Direct Tax Code keeping equity gains tax free till Mar 2011. I’d then asked if losses would be grandfathered – i.e. should we book them before and carry them over. Reader Sirka Pyaaz says:

If you held a share for more than one year and sell it in the open market, the capital gains are exempt. So the law says ‘hey, im not taxing you on the gains, so im not gonna let you take the benefit of accumulating your losses’. Which is fair enough. This means both profits AND losses will be out of the picture. To overcome this, sell your stocks for a loss in an offmarket transaction. In that case, gains are taxable so losses will be allowed.

This seems to be consensus. But reader PX points out that the taxman won’t be very happy allowing an “off-market” transaction designed just to avoid tax, even if it’s a legal loophole. Remember that since this year, anything of the sort created to avoid tax, with no other intention, is likely to be disallowed just on that basis.

Best perhaps to wait for the final DTC draft. Still, excellent conversation, thanks.


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