{"id":57114,"date":"2023-09-05T10:45:46","date_gmt":"2023-09-05T14:45:46","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/im-76-and-lost-200000-in-shares-when-a-company-went-bankrupt-how-do-i-minimize-this-capital-loss\/"},"modified":"2023-09-05T10:45:49","modified_gmt":"2023-09-05T14:45:49","slug":"im-76-and-lost-200000-in-shares-when-a-company-went-bankrupt-how-do-i-minimize-this-capital-loss","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=57114","title":{"rendered":"I\u2019m 76 and lost $200,000 in shares when a company went bankrupt. How do I minimize this capital loss?"},"content":{"rendered":"

I am 76 and have more than $200,000 in capital losses, which are mostly from inherited stock in a company that went bankrupt years ago. I will never be able to use up the capital losses during my retired lifetime, and will only be able to apply $3,000 per year on my taxes.<\/p>\n

\n

I have enough in retirement funds, over $500,000, to be very conservative now in my investments, without the potential of principal loss. Any type of potential conservative strategy that may allow for capital gains to offset some of my capital would be appreciated. What do you suggest?<\/p>\n

Seeking the Silver Lining<\/p>\n

Dear Seeking, <\/h2>\n

I know you would prefer handsome returns on those inherited shares, but experts tell me you can still benefit from these losses.<\/p>\n

Without getting into the complexity of corporate bankruptcy proceedings and the tax rules for shareholders, when companies go belly up and its stock has no chance to regain value, the Internal Revenue Service views that security as \u201cworthless.\u201d The tax code treats these worthless securities as a capital loss for the owner.<\/p>\n

Capital losses offset capital gains and after that, taxpayers can deduct up to $3,000 in losses exceeding their gains. The remaining losses get carried forward to future tax years.<\/p>\n

You want to make the best out of your hard luck, but you want to do it with caution. I get it. I\u2019d be risk-averse too if I saw these stocks sour like you did. But your mound of capital losses gives you wiggle room on your strategies to build more wealth and conserve it. So does the amount of money that you have already tucked away.<\/p>\n

Opening a brokerage account<\/strong><\/h4>\n

The good news: There is a tax smart way to do it. Investments generating bigger capital gains \u2014 like individual stocks, mutual funds and ETFs with an array of holdings \u2014 should be in a brokerage account. That way, the capital gains taxes stand ready to be neutralized by the pool of losses you already have, said Ben Jacobs, founder and financial planner of Fully Financial in Athens, Ga. \u201cAll that growth will be tax free,\u201d he said.<\/p>\n

Getting too deep into the stock market may not sound appealing. But if you are eyeing something like a bond fund in the hopes of steady returns, income from these bond funds are generally treated as ordinary income distributed in the year it was earned. Your capital losses cannot offset money that comes to you as ordinary income, Jacobs noted.<\/p>\n

The interest income from Treasury bills, notes and bonds are also subject to federal income taxes, but exempted from state and local income taxes, the IRS notes. If you sell bonds ahead of maturity for a profit, there\u2019s a capital gain. Sell ahead of maturity at a loss and there\u2019s a capital loss. The interest income from high yield savings accounts and CDs also count as ordinary income in the view of the taxman.<\/p>\n

Evaluating risk vs. safety<\/strong><\/h4>\n

It\u2019s completely understandable to consider safe assets after being burned by the market, said Isabel Barrow, director, financial planning at Edelman Financial Engines. Yet there\u2019s a risk in hewing too close to safety. Bonds aren\u2019t immune from losses \u2014 stocks and bonds both plunged last year, she said. Returns based on cash and bond investments may also struggle to keep up with long-term inflation, she noted.<\/p>\n

\u201cRather than focusing on one asset class, you are better off determining the appropriate overall asset allocation for your circumstances, and remain broadly diversified,\u201d Barrow said.<\/p>\n

At 76, you definitely have a path ahead for more investing. \u201cIf you expect longevity, you\u2019ll likely still need to have a broad basket of investments, such as stocks\/bonds\/international, etc., but focus on more preservation than growth as your circumstances and time frame warrant,\u201d Barrow said.<\/p>\n

Capital gains on selling a house<\/strong><\/h4>\n

Put investing strategies to the side for a moment. These capital losses can be applied to other assets gaining value, like your house, Jacobs and Barrow noted.<\/p>\n

I don\u2019t know if you own your home and if you are mulling a move. Still, the IRS says when you sell the home you live in, the first $250,000 in profits are exempted from capital gains. For a married couple, capital gains taxes apply after the first $500,000 in profits.<\/p>\n

If you have capital losses to apply, that could lighten or even erase the capital gains tax hit. \u201cIn a real-estate environment like we have seen recently, it\u2019s becoming more and more common to have large capital gains taxes due on a primary residence, even after the exempted amount,\u201d Barrow noted.<\/p>\n

The $3,000 capital-loss deduction<\/strong><\/h4>\n

The capital loss limitation has been pegged at $3,000 since 1978. The proposed \u201cCapital Loss Inflation Fairness Act\u201d would increase the loss limitation to $13,000 for individuals and married couples filing jointly. The bill, sponsored by Rep. Ralph Norman, a Republican from South Carolina, is also indexed for inflation.<\/p>\n

It\u2019s a \u201cwell overdue, small modernization of the tax code,\u201d Norman said in April, when introducing the bill for the second straight year.<\/p>\n

Large swathes of the 2017 Tax Cuts and Jobs Act are due to expire at the end of 2025, including rate reductions for five of the seven income-tax brackets, and a nearly doubled standard deduction. So expect more bills to be introduced in Congress to address the mountain of expiring tax rules.<\/p>\n

The hope is the Capital Loss Inflation Fairness Act will eventually become part of a larger tax package that grows out of that legislative process, said Darcy Merline, legislative director at Norman\u2019s office.<\/p>\n

Strategically applying capital losses<\/strong><\/h4>\n

It\u2019s tricky to plan your investment and tax strategies around what may or may not happen on Capitol Hill. Don\u2019t let that weigh on your plans, just consider that a heads-up.<\/p>\n

There shouldn\u2019t be a scattershot race to use up the capital losses, said Marianela Collado, chief executive officer and co-owner of Tobias Financial Advisors in Plantation, Fla. Hold onto them and use them when you need to liquidate assets, she said.<\/p>\n

\u201cThose losses are super valuable, especially for retirees who would be potentially drawing from a portfolio to supplement their lifestyle, and the nice thing for them is that they won\u2019t have to worry about triggering gains going forward,\u201d she noted.<\/p>\n

Strategically applying the losses can help your cash flow, which sounds like a win to me.<\/p>\n

Got a tax question? Write me at: akeshner@marketwatch.com<\/strong><\/em><\/p>\n

Thanks for reading. I want to help you think more broadly about the issues that affect your taxes. I\u2019m not offering tax advice, just an attempt to look at what the swirl of tax rules and economic conditions could mean for your wallet.<\/strong><\/em><\/p>\n

I\u2019m here for the reader who faces their taxes with an air of resignation. You\u2019re just not that into taxes, I get it. I was once that guy. Underneath the jargon, think of your taxes like a maze \u2014 with money at the end. Or a trap that you need to avoid.<\/strong><\/em><\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

I am 76 and have more than $200,000 in capital losses, which are mostly from inherited stock in a company that went bankrupt years ago. I will never be able to use up the capital losses during my retired lifetime, and will only be able to apply $3,000 per year on my taxes. I have […]<\/p>\n","protected":false},"author":1,"featured_media":57115,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-57114","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nI\u2019m 76 and lost $200,000 in shares when a company went bankrupt. How do I minimize this capital loss? | iFintechWorld<\/title>\n<meta name=\"description\" content=\"I am 76 and have more than $200,000 in capital losses, which are mostly from inherited stock in a company that went bankrupt years ago. 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