What are capital losses and how they can be recovered in the form of a tax credit: here is a short guide to find out more.
In managing your assets, it is also very important to consider the fiscal aspects. The tax recovery of losses deriving from financial investments is not a simple topic and, for this reason, it generates confusion among savers.
Let’s clarify the dreaded capital losses to understand what they are and how they can be recovered in the form of tax credit.
What are losses?
From an accounting point of view, capital losses (and capital gains) are extraordinary income components that occur when the sale of an asset, in our case, is financial.
A loss occurs when a financial instrument is sold at a lower price than the purchase price, thus generating a tax credit. The loss is set aside in the so-called "fiscal backpack" and can be recovered - in the ways we will see - in that same year or in any case within the next four years.
Therefore, all is not lost: most European tax systems, albeit with some rigidity, allow recovery of capital losses through compensation mechanisms, to be implemented by exploiting the income obtained from other financial instruments. However, it must be remembered that there are differences in the functioning of clearing systems, based on the tax regime and therefore depending on whether you are in a "administered regime" or "declarative regime".
How to recover losses?
First of all, let’s start with a premise. It is not possible to offset the losses with all types of income generated by financial instruments. In fact, financial instruments can generate:
- capital income (bond coupons, interest, share dividends, capital gains obtained from other instruments such as ETFs or IICVs);
- miscellaneous income (capital gains on equities, bonds, government securities, etc.).
Losses fall within the category of miscellaneous income and, therefore, the rule says that these can only be offset with other different income and not with income from capital.
We also remind you that capital gains generated by financial products are taxed at 26%, with the exception of government bonds and those issued by supranational bodies, which are taxed at 12.50%. Capital losses, on the other hand, are not taxed but generate, as anticipated, a tax credit.
As we said before, the compensation works differently depending on whether you are in an administered regime or in a declarative regime.
The administered regime is the one that is normally applied by default by the bank or financial intermediary to which we have relied on for the management of our financial portfolio. In this case, the bank (or the SIM), for example, will act as withholding agent on our behalf: this means that the bank will summarize our tax position and calculate and pay taxes for us.
Eventually, we will receive the net results of our investments directly into our checking account. If we have made a gain, it will be immediately taxed; if we have made a loss, however, it will end up in our fiscal backpack. The service offered by the bank is undoubtedly convenient, but it is less flexible on the mechanism of compensation for losses, a mechanism that will reduce or eliminate our backpack. In fact, in the case of the administered regime, it will be possible to recover the tax credit only if the loss (capital loss) occurred before the gain (capital gain) to be used to offset, or at the latest on the same day (the value date of the operations will be valid. ). Furthermore, it is not possible to offset gains and losses from accounts in different banks.
In the case of the declarative regime, on the other hand, at the end of the year, we will have to summarize our financial position following the sale of securities: the bank, in fact, will provide us with our gross position and we (or our accountant) will be in charge of calculating the taxes. While we will not have the convenience of having someone do the accounts for us, on the other hand, with the declarative regime, there is more flexibility in the compensation mechanism. The principle remains that different incomes speak only with different incomes and not with capital ones but, in this case, it is not necessary that the losses have been realized before the capital gains: at the end of the year, it will be possible to calculate our net profit by putting together all the sales of the fiscal year, even carried out with different intermediaries.
Finally, the purchase prices of the securities are calculated differently in the two regimes: with the administered regime, the purchase price is calculated as a weighted average price; with the declarative regime, the LIFO method is applied instead.
Between the two regimes, it is not easy to determine which is the best: certainly with the first you save time and effort, but you lose flexibility. With the second, it is certainly easier to compensate for the losses, but we will have to do the calculations ourselves.
Original article published on Money.it Italy 2022-03-29 11:54:01.
Original title: Minusvalenze: cosa sono e come recuperarle
