Is the new tax law true
How investors can claim losses for tax purposes
The corona pandemic has caused many investors to suffer heavy losses. As a result, despite the recent catch-up on the stock markets, many investors still have a big minus in their portfolios.
Such losses with securities investments are painful - but they only hurt half as much if you can involve the tax authorities. To do this, however, you have to know the rules of the game in detail, because the tax office does not want to recognize all losses by any means.
Most important basic rule: Losses from capital investments may generally only be offset against profits from other capital investments - but not against other income - for example from an activity as an employee or landlord. In terms of investment income, since the introduction of the final withholding tax in 2009, banks and the tax authorities have also made a strict distinction between old losses that arose up to the end of 2008 and losses that arose from new investments from 2009 onwards. Completely different rules apply to both. During the year, banks and fund companies are only allowed to automatically offset profits and losses that were generated from new investments from January 1, 2009 onwards.
If there is a loss from all investments at the end of 2019, this can be carried forward to future years without any time limit and offset against the profits and investment income generated there.
- Note: However, stock savers have to live with a special feature - losses from stock purchases made from 2009 onwards may only be offset against profits from stock sales. The Federal Fiscal Court is currently examining whether this restriction is constitutional (Az. VIII R 11/18).
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Two loss offsetting pots
In order to be able to comply with these rules of the game, the custodian bank will electronically keep two loss offsetting pots for each investor until the end of 2019. In the first pot Realized losses end up from sales of shares, REITs (= Real Estate Investment Trust, listed real estate companies such as Hamborner AG) and full risk certificates with put options - provided that investors have put these papers in their custody accounts after December 31, 2008. The losses from stock transactions will count in full with the tax from 2009 onwards, but the lousy ones will be put on hold in this store until a profit that can be offset is generated from stock deals at the same bank.
in the second pot all other realized losses on securities investments made since 2009 end up. Gains and losses from trading in bonds, certificates, futures, fund units and accrued interest paid are recorded. All additional costs when buying and selling, such as bank charges and brokerage fees, are included.
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New from 2020 - two more loss pots
With the Annual Tax Act 2019, the Federal Ministry of Finance, headed by Olaf Scholz, has completely recovered the unpopular case law relating to worthless shares, expired options and certificates and losses from insolvent bonds and defaulted private loans for losses arising from 2020.
If stocks and bonds become worthless after a company goes bankrupt, investors may only offset the total losses suffered since 2020 up to an amount of 10,000 euros with other taxable investment income. Unused losses are carried forward to future years. Losses from forward transactions realized from 2021 onwards may also only be offset against profits of the same type and only up to a maximum of EUR 10,000 per year in a tax-saving manner.
- Biallo tip: The Deutsche Schutzvereinigung für Wertpapierbesitz e.V. (DSW) has announced a lawsuit against this new legal regulation. Affected investors will file an objection to their tax assessment for 2020 next year and wait for the outcome of this model lawsuit without risk of legal action or costs.
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Taxes are often automatically refunded
The custodian institutions maintain the various loss pools separately from one another throughout the year. This has a decisive advantage for investors: they do not have to chase long after their tax money, once they have been paid. The bank will also refund taxes that have been overpaid in the current year.
Example: If an investor achieved a price gain of EUR 1,000 with shares in January 2020 and paid EUR 250 withholding tax on it, and if he realizes an offsettable price loss with shares of EUR 1,000 in April 2020, the bank pays the EUR 250 tax withheld in winter directly back.
Many investors can therefore save themselves the filling out of complicated tax forms. Married couples have an advantage if they have given their custodian bank a joint exemption order. Exchange rate gains and losses are then offset across accounts and custody accounts. However, if the spouses have custody accounts at different banks, they still cannot avoid filing a tax return.
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Sequence for loss offsetting
Investors with custody accounts at several banks can only achieve cross-institutional loss offsetting via the annual tax assessment. To do this, you must first request a loss certificate from your custodian bank by December 15 of the current tax year and then submit it to the tax office with your tax return after the end of the year. A BMF letter dated January 17, 2019 (file number IV C 1 - S 2252/08/10004: 23, download at www.bundesfinanzministerium.de) once again clarifies the exact order in which the tax-saving offsetting of exchange rate gains and losses is to be sent has taken place.
First of all, all share sales profits of all certified custody accounts are offset against share sales losses from the current year. Only then does the tax office take into account loss carryforwards from share deals from previous years. If the figures certified by the respective bank also include losses from other securities transactions, this is also primarily offset against profits from the current year. Only then do loss carryforwards from previous years come into play.
- Biallo tip:For the 2020 tax return, the certificate must be requested from the custodian bank by December 15, 2020.
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Turning point in equity losses
In order to make the depreciation of a share tax-effective, you actually have to sell the paper. However, the Federal Ministry of Finance (BMF) has so far been of the opinion that a loss is not tax-effective if the sales price for the papers just covers the bank charges and the brokerage fee incurred (BMF letter of January 18, 2016, Federal Tax Gazette 2016 Part I, page 85) . Since the tax authorities had expressed their opinion with the custodian banks by the end of April 2019, such sales losses were not included in the loss pot for shares.
However, the Federal Fiscal Court (BFH) ruled against the tax authorities on June 12, 2018 (Az. VIII R 32/16) that a tax-effective sale also exists if the transaction costs are not covered. In addition, the judges from Munich decided that investors can claim these red numbers even if they do not have a bank certificate on their income tax return. It was not until the BMF letter dated May 10, 2019 (Az. IV C 1 S 2252/08/1004: 26) that the Ministry of Finance admitted its defeat and wants to recognize such share losses.
But be careful: The banks will definitely not have to change their certification practice until 2020. So there may still be share losses for 2018 and 2019 that are not shown in the bank certificate. Investors then have to submit this to the tax authorities on their own initiative. Investors should therefore keep all purchase and sales receipts in the event that the tax office requests them at a later date.
- Biallo tip The Rhineland Palatinate Finance Court ruled on December 12, 2018 (Az. 2 K 1952/16) that even the write-off of worthless shares without replacement leads to a tax-deductible loss. The BFH has to make a final decision - revision proceedings under Az. VIII R 5/19 have been pending since March 20, 2019.
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Tax effective knock-out
If investors took to the boards with their knock-out certificates, they can now fully offset the lost investment against other investment income. This was decided by the BFH (BFH judgment of November 20, 2018, Az.VIII R 37/15). The BFH has yet to clarify in a further pending revision procedure (Az. VIII R 1/17) whether this also applies to certificates that have a stop-loss threshold upstream of the base price.
- Biallo tip: In neither of the two cases does the Federal Ministry of Finance want to back down - there are no official reactions from the offices. Affected investors must therefore defend themselves and, if necessary, with reference to the BFH case law, take action against negative tax assessments if the tax office does not want to offset the losses voluntarily.
Lousy with middle class bonds and personal loans
The tax authorities still do not want to accept investor losses from the purchase of high-interest medium-sized bonds or loan defaults from private lending for tax purposes. You are referring to an instruction from the Federal Ministry of Finance (BMF letter of January 18, 2016, BStBl. 2016 Part I, page 85, paragraph 60). But such instructions only bind the tax offices - they are not relevant for the individual taxpayer. The BFH has already clearly rejected the administrative practice for private loans specified in the BMF letter (judgment of October 24, 2017 Az. VIII R 13/15).
The tax offices now have to rethink - but that is clearly difficult for them. An official statement from the authorities on the new legal situation is still pending. They have been advising internally for years how to deal with the expensive judge's verdict (brief information from the OFD North Rhine-Westphalia from January 23, 2018). The BFH ruling has therefore still not been officially published in the Federal Tax Gazette and is therefore not yet generally applicable to all taxpayers concerned.
The tax offices often reject corresponding applications for loss deduction and point out that the judgment of the BFH of October 24, 2017 was an individual decision. This way is not correct. Affected taxpayers should object to the tax assessment and apply for a "suspension of the proceedings". It costs nothing and as a free rider you benefit from future decisions by the BFH. Even if the ruling of October 24, 2017 would soon be implemented by the offices in all disputes, this ensures a subsequent tax refund. Because the chances are not bad.
In a further dispute (IX R 9/18), the BFH must clarify whether the waiver of an outstanding loan claim can also be asserted for tax purposes. It must also be clarified at what point in time the losses from private lending become tax-effective (Az. VIII R 28/18).
The lower court of the Düsseldorf Finance Court had previously determined that the loan default is tax-deductible at all (judgment of July 18, 2018 - Az. 7 K 3302/17 E). In a judgment of September 25, 2018, the FG Düsseldorf decided that the expropriation of bondholders must also lead to tax-deductible losses (Az. 13 K 93/16).
Also read:Exchange for beginners - securities trading simply explained
Old losses are not worthless
Custodian banks and fund companies have nothing to do with old losses from the period up to the end of 2008 - but they are not worthless. Investors only have to submit this to their tax office. Investors were allowed to save their red numbers from the period up to 2008 into the new tax system of the flat tax.
However, they were only able to offset these old losses for a limited period up to December 31, 2013 via the tax return with exchange rate gains from all securities transactions from 2009 onwards. This also includes profits from the sale of bonds, certificates and fund units - but not interest income or dividends or payments from life insurance or fund distributions.
Since 2014, old losses that have not yet been used can only be offset against profits from private sales transactions such as the taxable sale of real estate, precious metals such as gold bars or coins or antiques.
Also read:Investment tax - banks pick up advance lump sums
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