Loss limitation: Investors must pay attention here!

Last Updated: 18. Januar 2024By

The biggest mess that completely out-of-touch German career politicians have committed lately undoubtedly includes the loss limitation on futures trading, which has been annoying German investors for the past three years.

Since this time period, losses from futures trading can only be offset against profits from futures trading up to a limit of 20,000 euros.

Loss limitation: Investors must beware! In practice, this means that in many cases, you end up paying much more taxes than the profits you have actually earned. In individual cases, according to press reports, it has even happened that traders had to pay taxes in the five-digit euro range, even though they did not make any profit in the end.

Here is a (still moderate) example from me:

You make a profit of 60,000 euros with futures trading and a loss of 50,000 euros with other futures trading. So, you end up with a profit of 10,000 euros. However, under the new law, the tax office only recognizes 20,000 euros in losses, so you have to pay taxes on a „profit“ of 40,000 euros.

At an income tax rate of 40%, that would be 16,000 euros in taxes, even though you only have a profit of 10,000 euros. So, in summary, a „tax rate“ of 160%, the tax is higher than the profit. So, you would have to take out a loan to pay the tax (or deplete your assets). Absolutely crazy!

A law as organized lawlessness In my opinion, this is a clear violation of the law. According to unanimous expert opinion, the regulation is also unconstitutional and clearly violates the principles of fair taxation.

How such nonsense can be seriously passed in the Bundestag as a law and even cemented as part of the „Future Financing Act“ of the traffic light government, is completely beyond me.

Tax court stops nonsensical profit taxation on futures trading Fortunately, the courts are finally putting an end to this absurd behavior. Recently, a trader in a much more extreme case than described above first filed an objection against the tax assessment and finally filed a lawsuit.

The Rhineland-Palatinate Tax Court ruled in favor of the trader. With a decision dated December 5, 2023 (file number: 1 V 1674/23), it suspended the enforcement of the tax assessment for 2021 and explicitly expressed doubts about the constitutionality of the current loss limitation on futures trading.

Quote: „The amount limitation of loss recoupment in futures transactions according to ยง 20 para. 6 sentence 5 Income Tax Act in the version of the Annual Tax Act 2020 leads to unequal treatment, for which there is no reasonable justification based on preliminary examination,“ reads the summary of the decision of the Rhineland-Palatinate Tax Court.

Final clarification only through the Federal Constitutional Court Is the law therefore ineffective and will all future losses from futures trading be offset against profits as before? No. If you are affected by this problem, you must continue to file an objection against your tax assessment and possibly also file a lawsuit.

Because a final ruling on the law as such is still pending, this decision was only made in a specific individual case. In the end, the Federal Constitutional Court has to decide on the question of limiting the offsetting of losses on futures trading.

However, this case clearly shows how amateurishly laws are made in the German Bundestag to the detriment of citizens. For this reason, you should inform yourself about how you can avoid falling under the provisions of these shoddy laws in the first place.

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