Loss from private equity – Long term capital loss or other tax treatement
In 2013, purchased $43,000 in company stock. (company was private – so not traded on exchanges), just a check to the company for shares. Company was bought out in 2020 for next to nothing so stock was deemed worthless. The person was a manager of a division in the the company (but not owner / founder / VP level etc.).
I assume this just falls under regular long term capital loss rules. However another employee (who may have been an owner / higher level exec), was told that they could write the whole loss of this year or if they didn’t do it this year they would have to just deduct a little over time (presumably the standard $3,000/yr).
Basically, is there anything that would allow this person to deduct the whole thing (they don’t have capital gains to offset), against ordinary income? (I don’t think so, but thats why I’m asking).
I think his “coworker” either was given bad information or perhaps his co-worker was more materially involved in the operations of the company (ie owner?), that would allow them to offset the loss again ordinary income.
Permalink Submitted by Alan - IRA critic on Wed, 2021-01-27 17:56
I agree, unless the person somehow qualified for the ordinary income treatment by having sufficient interest in the company. I am not knowledgeable in those rules.
Permalink Submitted by David Mertz on Wed, 2021-01-27 18:14
This isn’t really a subject for this forum, but I’ll answer anyway. It sounds like the other employee misunderstood what they were told and was actually told the same thing that you understand, that this would be a capital loss. Capital losses are first be applied against capital gains (which this person apparently does not have) each year and any remaining loss as up to $3,000 of negative income against ordinary income each year. This is not a deduction, but does offset income. Any of the loss that cannot be applied in a given year is carried forward to be applied in the same way the next year.