Taxes

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humblepie

I have a general U.S. tax question.

In early 2000, I decided to be a "long-term investor" and bought a bunch of highly-touted tech stocks. I also made a pretty sizable investment in a stock I personally liked. The tech stocks crashed, but my personal pick did very well.

8 years later, my account is at about break-even with what I invested. If I liquidate everything so that I can start actively trading, what are the tax ramifications? Will my losses completely offset my gains, or is there a limit to what I can deduct as a loss?
 
Quote from humblepie:

I have a general U.S. tax question.

In early 2000, I decided to be a "long-term investor" and bought a bunch of highly-touted tech stocks. I also made a pretty sizable investment in a stock I personally liked. The tech stocks crashed, but my personal pick did very well.

8 years later, my account is at about break-even with what I invested. If I liquidate everything so that I can start actively trading, what are the tax ramifications? Will my losses completely offset my gains, or is there a limit to what I can deduct as a loss?
More...

1) Assume that:
- all of your positions are over one year old,
- you sell them all,
- the net profit is breakeven
=> You will owe zero taxes.

2) If, however, the net P&L was profitable, then you will owe long term capital gains taxes on the net overall profits (note that closed losing trades will mostly offset the profits from your closed profitable trades, and you will owe taxes on the difference).

3) If, however, the net P&L was a loss, then you will owe no taxes upon closing your positions, and you will be able to use your overall net loss to offset any other long term capital gains you may have. In addition, up to $3000 of any remaining net loss can be used to offset 'ordinary' income (like salary, interest income, dividends, etc). Any additional losses (above the $3000 above) can be carried over to future years until it is total 'used' to offset future capital gains or income.

This is pretty much how it works, although "please consult your local tax professional for further specifics and details". I'm sure someone will correct me if I have any small points incorrect.

Best of luck,
 
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