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> since the capital invested was smaller than the tax losses generate Can you give an example of how that works? As a non-rich person if I invest $100 it seems

> since the capital invested was smaller than the tax losses generate Can you give an example of how that works? As a non-rich person if I invest $100 it seems like the largest taxes I can pay is $100 (100% tax). How do I generate > $100 tax loss for a $100 investment?

gnicholas 7y ago
It's been almost a decade since I studied this in law school, and we don't do anything with this stuff in practice anymore since the laws changed long ago. But the gist of it was that tax losses could be allocated to the parties that wanted them, and not necessarily proportionate to their percent of capital invested.
sgc 7y ago
buy real estate/business/other investment using leverage, and take deductions on the entire value if the tax code allows for it (which it often does). You just need to make enough to pay down the loan (increasing your equity) and break even on cash flow, and you are doing great. It helps keep rents lower since otherwise all landlords would need to cash flow. But it drives up property prices and thus the break even point due to higher demand, so maybe they offset each other - but how could we know? The important take away here is that modern legislation dictates much of what our economy looks like. With other tax regulations we would invest completely differently, for better or for worse.
TheOtherHobbes 7y ago
You buy an alpaca for $x,000 and declare yourself a breeder. You can depreciate the cost of the alpaca much more quickly than most assets. You can also depreciate related assets - barns, fencing, farm machinery - even if you own these already, as long as you weren't previously using them for business purposes. You can also deduct your losses against capital gains made elsewhere. And potentially save on property taxes, if your property becomes "agricultural". Essentially there's a difference between an accounting loss created by depreciation and creative categorisation of spending and/or use of legitimate tax breaks, and a genuine out-of-pocket spending loss created by losing money on an "investment". Your taxes are calculated on your accounting losses, not on your spending losses. The difference can be written off against taxes due on other income, reducing your final tax bill to zero - without having to spend the full "loss".
scarejunba 7y ago
Once upon a time there were laws that said that if you had expenses on certain farms you could deduct those from your income (and sometimes carry those expenses over to later). There was no true economic loss. You still had the farm. It's just that expenses counted as deductible. This was for the reason that farms sometimes have a large lead time before they're productive and I want to give you the chance of surviving the first few years that weren't productive. I think this was notorious as a citrus and almond farm thing.
- xyzzyz 7y ago
  You can always deduct ordinary and necessary business expenses from the income, and carry them over next 20 years. This is completely normal.
  - gnicholas 7y ago
    > You can always deduct ordinary and necessary business expenses from the income Except for costs that must be capitalized and depreciated/amortized, which includes lots and lots of things (computers, furniture, anything else with a useful life)

gnicholas 7y ago

It's been almost a decade since I studied this in law school, and we don't do anything with this stuff in practice anymore since the laws changed long ago. But the gist of it was that tax losses could be allocated to the parties that wanted them, and not necessarily proportionate to their percent of capital invested.

sgc 7y ago

buy real estate/business/other investment using leverage, and take deductions on the entire value if the tax code allows for it (which it often does). You just need to make enough to pay down the loan (increasing your equity) and break even on cash flow, and you are doing great. It helps keep rents lower since otherwise all landlords would need to cash flow. But it drives up property prices and thus the break even point due to higher demand, so maybe they offset each other - but how could we know? The important take away here is that modern legislation dictates much of what our economy looks like. With other tax regulations we would invest completely differently, for better or for worse.

TheOtherHobbes 7y ago

You buy an alpaca for $x,000 and declare yourself a breeder. You can depreciate the cost of the alpaca much more quickly than most assets. You can also depreciate related assets - barns, fencing, farm machinery - even if you own these already, as long as you weren't previously using them for business purposes. You can also deduct your losses against capital gains made elsewhere. And potentially save on property taxes, if your property becomes "agricultural". Essentially there's a difference between an accounting loss created by depreciation and creative categorisation of spending and/or use of legitimate tax breaks, and a genuine out-of-pocket spending loss created by losing money on an "investment". Your taxes are calculated on your accounting losses, not on your spending losses. The difference can be written off against taxes due on other income, reducing your final tax bill to zero - without having to spend the full "loss".

scarejunba 7y ago

Once upon a time there were laws that said that if you had expenses on certain farms you could deduct those from your income (and sometimes carry those expenses over to later). There was no true economic loss. You still had the farm. It's just that expenses counted as deductible. This was for the reason that farms sometimes have a large lead time before they're productive and I want to give you the chance of surviving the first few years that weren't productive. I think this was notorious as a citrus and almond farm thing.

xyzzyz 7y ago
You can always deduct ordinary and necessary business expenses from the income, and carry them over next 20 years. This is completely normal.
- gnicholas 7y ago
  > You can always deduct ordinary and necessary business expenses from the income Except for costs that must be capitalized and depreciated/amortized, which includes lots and lots of things (computers, furniture, anything else with a useful life)