“Whoever fears loss cannot make a profit” – this is a well-known quote from the US billionaire and investor George Soros. Converted to the stock market, this means that stock losses can be part of a successful investment strategy. In order to avoid tax disadvantages, such losses can be offset against positive capital gains. In certain cases, they are even part of regular earnings, allowing for “cross-compensation” of stock losses with other, positive income!
1st principle of offsetting share losses
Private investments in shares, funds and loans fall under §§ 20 and 32d EStG. They are part of the “income from capital assets”, which are compensated with the separate tax rate of 25 % (plus solidarity surcharge and, if applicable, church tax). Instead of including the respective income in the “normal” taxable income and thus burdening it with up to 45 %, it remains so with a tax burden of an average maximum of 26.375 %.
But: With § 32d paragraph 6 EStG, taxpayers can make use of the so-called cheaper examination. If the individual tax rate is less than 25 %, it shall apply on request. Thus, the withholding tax rate of § 32d EStG is actually to be regarded as a regular maximum.
According to the case law of the Bundesfinanzhof (BFH), the term “income” also includes negative income, in particular share losses. If these were now included – unlike profits – in the regular taxable income, there would be an unjustified advantage for taxpayers who only receive negative income from capital assets.
Therefore, § 20 paragraph 6 EStG applies to share losses. Income from capital assets (§ 20 (1) and (2) EStG) may only be offset against each other within this type of income, but then also over several years. A “cross-checking” with other types of income is excluded, which applies accordingly to the application of § 10d EStG, the general offsetting of losses.
Examples:
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.