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More-dangerously, it is taxing theoretical money that you haven't yet made. There is no guarantee that the current market-clearing price for a given object is
by ISL 6y ago
More-dangerously, it is taxing theoretical money that you haven't yet made.
There is no guarantee that the current market-clearing price for a given object is equivalent to that at which a larger inventory can be sold.
Taxing capital gains at the time of sale makes sense -- there is actual revenue available for taxation. Taxing unrealized gains can be a path to really-negative outcomes. This is particularly so if the government doesn't give matching credits for unrealized capital losses.
- jcampbell1 6y agoThere are some loopholes that should be closed however. You can go to a bank and borrow against your shares, using them as an asset without realizing capital gains. In my mind, if you use the shares (gains) as collateral for your benefit, you should have to recognize the capital gains as mark-to-market immediately payable.
- ISL 6y agoPresumably the bank won't accept them as collateral for more than can be realized at the time of sale? I'm no expert, but I would guess that, if shares are foreclosed upon, the bank's basis is zero (and their taxation short-term)? (Edit: the downside here is that the government doesn't see any revenue from this approach, which it might otherwise. The shareholder must pay interest, though, which might not be to their advantage.)
- beerandt 6y agoA loan is not (usually) taxable income. Taxable income is used to pay back the loan. This keeps people's capital invested longer term, which is part of the purpose of capital gains tax incentives. In other words, it's not a loophole. It's working as intended.