Quote:
Originally Posted by MovieBird
I'm curious, in the US you're only allowed to apply $3,000 in losses each tax year. A common practice is to "tax loss harvest". Let's say you invested $100,000 in the S&P 500 index fund, which dropped 12%. You then sell your S&P 500 shares and immediately invest in another, somewhat similar fund, say a Total Market Fund. You've just "lost" $12,000 but because the new investment is very similar to the old investment, when the S&P 500 recovers 12% the new fund should recover a similar amount.
Now, you can only apply $3,000 of that "loss" each year, or over 4 years.
[SNIP]
|
That $3000 limit is for capital losses applied against ordinary income. You can always apply all long-term capital losses against long-term capital gains in the same year (and similarly for short-term).
Also, J. Strnad wrote: "I've never actually seen a tax rate inhibit a wealthy person's desire to make money, btw."
It's not about inhibiting their
desire to make money, but rather about the marginal effect on the
particular methods they use. At relatively lower tax rates, there's not much point in worrying about how to game the system (
a.k.a. find tax "loopholes"), so they just get on with making money. At relatively higher rates, non-productive "investments" that "just happen" to avoid some or all of the income tax look more attractive, so they replace some part of the productive investment (or work, or whatever) that would otherwise have taken place. Such replacement activities act (at the margin) as a dead-weight loss to the economy.
Xenophon