(2021) What you can deduct for tax purposes in the event of capital losses

A capital loss can occur not only due to falling prices but also due to the total loss of the investment following the insolvency of the debtor. If, for example, a loan is lost in this way, the loss should be deductible as negative income from capital assets, as any increase in assets from other types of capital claims through sale, redemption, or repayment must be taxed as capital income in accordance with § 20 para. 2 no. 7 EStG.

The tax authorities do not recognise losses due to default on claims as tax-deductible because the depreciation is attributed to the private asset level and not the income level. The default on claims is not considered a "sale", and therefore the lost acquisition costs do not constitute negative capital income (BMF letter dated 09.10.2012, BStBl. 2012 I p. 953, para. 60).

However, the tax courts of Lower Saxony and Rhineland-Palatinate have recognised a loss of capital claims. Since the introduction of the withholding tax in 2009, gains at the asset level from sales or redemptions are taxable as capital income. This is to ensure that all increases in value are fully recorded. Conversely, this also means that decreases in value are recorded. Unlike in the past, there is no longer a distinction between income and asset levels. Therefore, realised changes in the value of the investment are tax-effective, both increases and decreases in assets (Lower Saxony FG of 21.05.2014, 2 K 309/13; FG Rhineland-Palatinate of 23.10.2013, 2 K 2096/11, confirmed by BFH ruling of 12.05.2015, IX R 57/13).

TIP: If you suffer a total loss due to the insolvency of the issuer, claim the loss, i.e. the acquisition costs of the investment, in your tax return with a strong minus sign as negative income. If the tax office refuses to offset it against other capital income, file an objection to the tax assessment and refer to the BFH rulings of 24.10.2017 (VIII R 13/15) and 12.05.2015 (IX R 57/13).

 

There is one more detail you need to know: If a total loss is realised from 01.01.2020, the offsetting of losses is limited to 20.000 Euro per year. Unused losses can be carried forward to subsequent years and offset against income from capital assets up to 20.000 Euro each year (§ 20 para. 6 sentence 6 EStG).

This applies to the irrecoverability of a capital claim, the write-off of worthless securities, the transfer of worthless securities to a third party, or other loss of securities. The regulation is also intended to cover sales transactions carried out for tax planning purposes, particularly when the solvency risk has already been partially or fully realised (BT-Drucksache 19/15876 of 11.11.2019).