Blog

Today is Tax Day, and I just introduced a new bill in the House to help people who are being punished on their taxes because of outdated capital loss rules.

Think of a capital asset as things like certain real estate, stocks, or other property. A capital gain (or loss) occurs whenever you sell a capital asset for a price different than its purchase price.

For example, let’s say 10 years ago you purchased a piece of land (not your primary residence) for $40,000. And this year, you sold that land for $50,000. This $10,000 “profit” represents a capital gain. If you had nothing to offset that gain, you would owe capital gains tax on $10,000.

You could offset that gain if you had a capital loss during the same year. That means if you sold an asset for less than its purchase price, you could subtract that capital loss from your capital gain (above) and only owe capital gains tax on the net. With a caveat…

Once you net everything out, there is no upper limit on the amount of capital gains which are subject to capital gains tax. However, if you had significant capital losses during a tax year, the most you could deduct from your ordinary income is just $3,000. Any additional losses would roll over to subsequent tax years.

The issue is that $3,000 loss limit was established back in 1978 and hasn’t been updated since. Back in 1978, you could buy a box of cereal for under $1. Or a new Honda Civic for under $5K. Inflation has been significant since then, so this loss limit needs to be adjusted upward to reflect the current reality.

My bill, the Capital Loss Inflation Fairness Act, will increase the outdated capital loss limit from $3,000 to $13,000. Then going forward, that amount would adjust annually for inflation.

With inflation through the roof and many people taking a loss on their investments, I think this area of the tax code needs to be updated and could have a terrible impact on taxpayers and investors if left unaddressed.