Capital Loss Exemption

[Woolygimp]

If your interest bearing accounts were down for the year, wouldn't it behoove someone for them to cash out all of their money and report a capital loss? Then of course immediately re-deposit their savings, or am I missing something?

My thoughts were that the Capital Gains Tax only applies when you cash out whether it be 2 months, 5 years, or 25 years. So am I reasonable assuming that the Capital Loss Exemption works the same way?

[RicoTubbs]

Your post doesn't make a whole lot of sense, but I suspect you're talking about a strategy that would be considered a "wash sale" and not generate a capital loss.

[Woolygimp]

You only have to pay capital gains when you retrieve the money out of your accounts, i.e. money in a Vanguard account...correct?

So assuming you were down for that year, could you automatically file for a capital loss or would you have to cash out your funds to be eligible?

[RicoTubbs]

You trigger capital gains when you sell a position at a profit. Here are 3 scenarios:

a. You put $10,000 into a Vanguard account and buy Mutual Fund A. At the end of the year, you continue to own Mutual Fund A, but the value has increased to $11,000. No capital gains yet.

b. You put $10,000 into a Vanguard account and buy Mutual Fund A. In December, you sell all of your shares for $11,000. You leave the money in your Vanguard account and use it to buy shares of Mutual Fund B. You have a capital gain of $1,000 that you will have to report to the IRS.

c. You put $10,000 into a Vanguard account and buy Mutual Fund A. In December, you sell all of your shares for $11,000. You withdraw the money from Vanguard and buy a Yugo. You have a capital gain of $1,000 that you will have to report to the IRS.

Whether you withdraw the money from the account or not, you still have a capital gain based on your sale of the mutual fund shares.

Similarly, you can't report a capital loss until you actually sell the position. Again, it doesn't matter whether you withdraw the money from the Vanguard account, though. Change the above examples to "at the end of the year the value was $9,000" and you get the results for capital losses.

(There is an exception for worthless stock, like for bankrupt companies, but whatever.)

[jively]

[ QUOTE ]
If your interest bearing accounts were down for the year, wouldn't it behoove someone for them to cash out all of their money and report a capital loss? Then of course immediately re-deposit their savings, or am I missing something?

[/ QUOTE ]
What "interest bearing account" is down for the year? Savings accounts and bank CDs are not securities and do not generate capital gains or losses, and should not be down for the year. Individual bonds could have a capital loss, but in general they are not down for the year.

If you have real estate stocks, they could be down for the year, and you may consider them "income bearing accounts" although it's not completely accurate.

If you sell a security for a loss, you would get a deductible capital loss. If you immediately re-purchase the same security (or even "substantially identical" security), the loss is considered a wash sale, and you cannot claim the loss. This is true if you buy the same security 30 days before or 30 days after the sale.

-Tom