Indexing Capital gains for inflation
Mr. Slott was quoted a saying that if The Treasury finds a way to implement indexing capital assets for inflation, why not include retirement accounts :
” What about assets in a capital loss position? Ed Slott, an expert on individual retirement accounts, said he was shocked that the proposal didn’t include investing for retirement. “Why should retirement accounts, where most of Americans have their money, be excluded?” Slott said. “That money is infected by inflation too.”
He added, “It’s going to make retirement accounts less valuable, at a time when every other study says people don’t have enough put away for retirement.”
I agree but here’a another question. In the case of capital losses – assets that are now worth less than their purchase price – if they go to adjusting gains for inflation, it seems to me that you would have to discount the sale price on capital losses for inflation. Without inflation, the sale price creating the capital loss would be lower than with inflation thus creating a greater capital loss.
So if you adjust the basis up for inflation in a gain situation( reducing the gain), you would have to adjust the sale price down for inflation in a loss situation ( increasing the loss).
What do you think?
Thanks. John Schwarz
Permalink Submitted by Alan - IRA critic on Thu, 2018-08-02 00:03
Yes, good point. Of course, the 3000 limit for cap losses allowed against ordinary income has also not been adjusted for decades, and justifies a major adjustment.
Permalink Submitted by Bruce Steiner on Sun, 2018-08-05 01:41
It used to be $1,000. Section 1401 of the Tax Reform Act of 1976 increased it to $2,000 in 1977 and $3,000 beginning in 1978: http://www.legisworks.org/GPO/STATUTE-90-Pg1520.pdf . See page 212 of the pdf document.
Permalink Submitted by John Schwarz on Thu, 2018-08-02 18:55
That’s true about the $3000 deduction limit on capital losses.Actually, on reflection isn’t it true that cost of living adjustments to salary, higher interest income in retirement or taxable accounts resulting from higher interest rates which are based on inflationary expectations, dividend payments which keep pace with yield expectation based on inflated corporate asset values are all the result ( to one degree or another) of the impact of inlfation. Thus, why just index capital assets? To be fair, all taxable assets and revenue streams affected by inflation should be considered if the administartion wants to make this change. A major restructuring of the tax system would be needed to cover all those bases.