taxes: offsetting losses of individual stock shares

[cj780 5]

Hi,

 

I've seen conflicting answers about this so I wanted to put up a post for clarification. 

 

As a US citizen, working in DE as a freelancer: If I have losses from individual stocks (e.g. Apple, Microsoft, etc) what can I offset those losses against?

 

I've seen answers that range from

1. only capital gains from other individual stocks
2. capital gains from individual stocks OR mutual funds
3. all income (earned income from work, interest income, dividends, cap gains from stocks or mutual funds)

 

Using round numbers as an example, what would be my tax liability in this scenario??

1. EU: earned income from working: 1000€
2. US account: dividend distributions from mutual funds and individual stocks: 6000€
3. US account: capital gains from mutual funds (e.g. Vanguard Total Stock Market Index): 5000€
4. US account: capital gains (loss) from individual stocks (e.g. Apple): -5500€

 

Many thanks in advance!

[Tim Hortons Man 542]

From the research I've done capital income (capital gains dividends and interest) is taxed at a flat rate of 26.375% (less the tax free portion - around 800€ 1600€ married) and that  capital losses can only be offset against other capital gains. It's also your world wide income.

 

Also I'd suggest googling "English Speaking Steuerbreater" and calling a couple. Most are willing to answer some questions. I did this when I was looking for a new person. 

 

Of course the fact you're American really complicates things greatly!

[cj780 5]

17 minutes ago, Tim Hortons Man said:

capital losses can only be offset against other capital gains. It's also your world wide income.

 

Hi Tim, thanks for your response. 

 

That is really my question: can losses from individual stocks be offset against ANY capital gain? 

 

I have seen some responses that says it cannot (and can only offset gains of other INDIVIDUAL STOCKS.

 

So in the example that I have here below, they would say the loss in line #4 cannot be offset against #2 or #3.

 

 

1 hour ago, cj780 said:

 

1. EU: earned income from working: +1000€
2. US account: dividend distributions from mutual funds and individual stocks: +6000€
3. US account: capital gains from mutual funds (e.g. Vanguard Total Stock Market Index): +5000€
4. US account: capital gains (loss) from individual stocks (e.g. Apple): -5500€

[Tim Hortons Man 542]

Hmm that's a good question, I'm going to be talking with my steuerbreater in the new year I'll ask him about that specificity. Hopefully you'll get an answer before then

[PandaMunich 14,958]

Capital losses from selling individual stocks can only be offset against profits from the sale of other individual stocks, see here.

 

In your example, your taxable income would be:

 

  1,000€

+6,000€

+5,000€

-    801€ (or 1,602€ if you're married)

_______________________________

11,199€

[cj780 5]

13 hours ago, PandaMunich said:

Capital losses from selling individual stocks can only be offset against profits from the sale of other individual stocks, see here.

 

In your example, your taxable income would be:

 

  1,000€

+6,000€

+5,000€

-    801€ (or 1,602€ if you're married)

_______________________________

11,199€

 

thanks @PandaMunich!

[Tim Hortons Man 542]

Google translate made a bit of mash out of it but rephrase what you said

 

Capital losses from selling individual stocks can only be offset against profits from the sale of other individual stock not against interest or dividend income. For example I have dividend income of 5000€ but I sell some stocks at a loss of 5000€. I still owe tax on the 5000€ while the capital loss is carried forward to when I sell some stocks at a profit.

 

Capital losses from ETFs or Mutual Funds can be offset against any capital income. I have dividend/interest income of 5000€ but I sell some ETFs or Mutual Funds at a loss of 5000€ this I can offset the dividend/interest income. 

 

Correct?

 

 

[PandaMunich 14,958]

Correct.

[Tim Hortons Man 542]

OK that's an interesting twist I didn't expect (second part) thanks

[Tim Hortons Man 542]

@cj780 good thread learned some new stuff today thanks

 

Quick question: what about return of Capital? 

 

this from here

 

Let’s start with a basic definition: Return of capital is the portion of a distribution that does not consist of dividends, interest or realized capital gains. For example, if a mutual fund pays $1 in distributions but only makes 90 cents in interest, dividends and capital gains on investments it sold during the year, the remaining 10 cents will be classified as ROC.

ROC is not immediately taxable. Instead, it is deducted from the investor’s ACB, which gives rise to a larger capital gain – or smaller capital loss – when the investment is ultimately sold. So ROC has tax advantages.

Is this the same in Germany?

Thanks

[jasperdrm 5]

@PandaMunich, do I need to always ask for a loss to be carried forward or does it automatically remain open until I one day claim it (and then I just have to mention the year and provide copy of the bescheid)?  I have a loss from 2011 and have now sold stocks in 2016.  Should I have been triggering anything to carry this loss forward so that I can use it when I file my 2016 taxes?  Thanks!

[PandaMunich 14,958]

It's carried forward automatically if you have a 2011 Bescheid showing that loss, i.e. if the Finanzamt knows about the loss.

[jasperdrm 5]

Thanks @PandaMunich

[udomin 54]

Hi, my question is similar to the OP's except I'd like to ask about reporting capital gains/losses as a couple. I am considering cutting my losses on a stock that's sitting on my account. It has been paying a generous dividend but it's heading for the bin. Could someone please enlighten me if I got the taxable income part right?

 

I've plonked in some arbitrary numbers: 

 

On spouse's account: 

Capital gains +1000€

Capital loss 0

Dividends +100

 

On my account 1:

Capital gains 0

Capital loss -1000€

Dividends +200€ 

 

On my account 2:

Capital gains +500€

Capital loss 0

Dividends 0

 

Does this mean, for our taxable income as a couple...  

Capital gains +1500€

Capital loss    -1000€

Dividends        +300€

                       -1602€

Taxable amt:     -802€ ?

 

In this scenario, we would not incur any taxes at all then? Is this correct?

 

TIA!

 

 

[Tim Hortons Man 542]

@udomin

 

Capital losses from selling individual stocks can only be offset against profits from the sale of other individual stock not against interest or dividend income. For example I have dividend income of 5000€ but I sell some stocks at a loss of 5000€. I still owe tax on the 5000€ while the capital loss is carried forward to when I sell some stocks at a profit.

 

Capital losses from ETFs or Mutual Funds can be offset against any capital income. I have dividend/interest income of 5000€ but I sell some ETFs or Mutual Funds at a loss of 5000€ this I can offset the dividend/interest income. 

 

An interesting quote from Garth the Great regarding taxation

 

Quote

Most people, of course, simply don’t understand how they’re taxed or what to do to minimize the impact.

They also don’t realize how the tax system is skewed to ensuring the rich stay that way.

 

 

The second part is the most relevant. Back in the day when stock trading was the exclusive to the wealthy tax law (generally speaking not specific to Germany) losses could be written off against regular income. Once stock trading became mainstream the rules were changed. Specific to Germany it used to be that you could buy a few shares of Siemens stock and write off the trip to the annual meeting, which I'm sure coincided with Oktoberfest!

 

 

[udomin 54]

Thank you @Tim Hortons Man! :-)

Any idea why interest or dividend income from stocks cannot be used to offset against capital losses? Why is there a differentiation between stock investment and etfs/mutual funds? 

[Tim Hortons Man 542]

1 hour ago, udomin said:

Thank you @Tim Hortons Man! :-)

Any idea why interest or dividend income from stocks cannot be used to offset against capital losses? Why is there a differentiation between stock investment and etfs/mutual funds? 

I don't know, Germans have some strange rules around taxation. One huge positive is the superficial loss rule. Normally you have to wait 30 days before repurchasing a stock but you only need to repurchase it at a different price. Quite useful I must say 

[HEM 9,990]

16 minutes ago, Tim Hortons Man said:

I don't know, Germans have some strange rules around taxation. 

 

Basically its "why do things simple when complex can be made to work almost as well?"

[Starshollow 6,020]

17 hours ago, udomin said:

Thank you @Tim Hortons Man! :-)

Any idea why interest or dividend income from stocks cannot be used to offset against capital losses? Why is there a differentiation between stock investment and etfs/mutual funds? 

 

well, there is a long story behind that: in the past (before 2009 mostly) a lot of stupid investments like Film/Movie funds where sold to investors only to make outrageous paper losses which were then used to offset against after other capital gains. That became such a widespread industry that the state lost billions of EUR in taxes while in Hollywood the expression "Stupid German Money" was coined for those billions of EUR collected from investors in Germany trying only to reduce taxes with the use of investments which were anything but profitable investments in the first place.

That then led to the decision of the government that losses can be offset against likewise investments in order to put a stop to that. Not that I agree with the totality of how this was put into law...but the beginnings are understandable.

 

Cheerio

 

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[udomin 54]

nice bit of history there @Starshollow, thank you. 

& thank you, @Tim Hortons Man too. can't remember if it's on this thread but there was a mention on repurchasing the stock on a different account. it's def worth noting that it's also possible to repurchase at a different price.