Please help - im freaked out! on my dad's taxes this year, his loses were over $160,000.......yikes!!!?

Question

when he subtracted capitol gains from loses,

the net loss was about $160,000.

should i be worried???

i read other yahoo answers questions and people say you can claim $3,000 if you make no more gains.

let say that my dad never makes any more gains or losses,

then, it should take over 50 years to completely offset it?

does this mean that my family is $160,000 in debt?

can he pay this loss off if we really start to save money or get a second job?

i really dont understand the stock gains/losses thing...but i do know that we lost $160,000 this year.

what should i do?

are we in serious financial trouble?

will getting a second job help pay this off?

i couldnt even sleep last night - i am so stressed out about this

please help - advice would be really appreciated.

Answer 1

He can only deduct $3000 per year against other income, and carry the rest of the capital loss over.  In future years if he has capital gains the carryover loss would wipe those out - otherwise yes, it would take a long time to use up the carryover.

No, it doesn't mean that your family is in debt that much, and doesn't mean that you are in financial trouble.

Why don't you talk to your dad about this?

Answer 2

Having a net loss of $160,000 means, of all the stocks he SOLD in 2007, he sold them for $160,000 less than what he paid for them.  So, if he paid $360,000 for the stocks over the years, then he must have sold them for $200,000 to get a loss of $160,000.

The loss tells us very little about what he still owns.  For example, he could have started with $640,000 and invested $320,000 into stock A and $320,000 into stock B.  In 2007, stock A was down so he sold it for $200,000.  Maybe stock B ended the year worth $500,000...but because he didn't sell it, he didn't recognize any capital gains.  His account, in our hypothetical example, is now worth $700,000 ($500,000 of stock B plus $200,000 of cash) which is $60,000 more than where he started.  Simply looking at net loss in 2007 is a myopic view of the real picture.  Things could be much better or worse...I don't know.  Maybe he invested $170,000 (all the money he owned) and now only has $10,000.

The point is, don't simply look at Schedule D to determine your father's financial health.  Look at his statements instead.  It is true that if your father never has a capital gain or loss from now on, it may take 160,000/3000 or 53 years to realize the tax benefit of the loss.  However, why would you assume he would stop investing altogether?  I certainly wouldn't.  With that much loss, the next $160,000 of gain (short term or long term) is tax free!  He can't afford NOT to invest in something that will go up.  Maybe he is risk adverse now that he lost so much.  Maybe $160,000 is nothing to him.  Either way, there are investments that are much less risky than others.  Procter and Gamble, Phillip Morris, Dow, DuPont.

Finally, like others have said, his LOSS is $160,000, not his DEBT.  You usually have to own something worth $160,000 to sell it at a loss of $160,000.  The exception is if he borrowed the entire amount, invested it, and subsequently lost it all.  He would now have to pay back the $160,000 plus interest.  However, banks don't loan to investors without the investor having to put up some of the money himself.  So, chances are his net worth is still positive.  The best bet is to go ask him or to check his financial records (with his permission).

Answer 3

It is true that if your father had no more gains or losses, it would take over 50 years to completely deduct the $160,000 loss.

The loss does not mean that your family is in debt.  The loss is not paid back.  Your getting a second job will not reduce the loss.

There is nothing you can do to improve your father's tax situation.  Whether your family is in financial trouble or not depends on a lot more than if your father had a capital loss.  

You may want to speak to your father about your worries.

Answer 4

If he lost that much, he probably still has at least that much left if not a lot more - he can use that 160,000 loss to offset gains of 160,000 in the future

Answer 5

I agree with the previous post.  To have a $160,000 capital loss generally means he wasn't in debt, but rather that he used to have $160,000 in wealth that he no longer has.  He can spend the money he still has.

To truly get in trouble, he would have to have borrowed money to buy the original assets.  Did you see any paperwork stating that he'd paid margin account interest?  Only if he borrowed the money would he have to pay it back.

The downside of this is you need to sit your dad down and ask him what his net worth is (and not sound like you are hoping to inherit it) and whether he has enough assets/income to cover his living expenses.

If your dad/mom had $2Million in assets, losing $160K hurts, but it's not the end of the world.  If they had $300K in assets and then lost $160K, that's a whole different story.

Answer 6

Tax losses and debt are two different things.

I had losses on my taxes, but still put money in the bank.

Sleep well, don't worry.