Loss limitation: Investors need to be careful here!

Last Updated: 20. Februar 2024By

One of the biggest nonsense acts that completely out-of-touch German professional politicians have committed lately is undoubtedly the loss offset restriction for futures transactions that has been annoying German investors for the past three years.

Since this period, losses from futures transactions can only be offset against profits from futures transactions up to a maximum of 20,000 euros per year.

Loss restriction: Investors need to be careful! In practice, this means that in many cases, you end up paying much more taxes than the profits you have actually made. In some individual cases, according to press reports, traders have even had to pay five-digit euro amounts in taxes, even though they did not make any profits in the end.

Here is a (still moderate) example from me:

You make 60,000 euros in profit from futures transactions and 50,000 euros in losses from other futures transactions. So, in the end, you have a profit of 10,000 euros. However, under the new law, the tax office now only recognizes losses up to 20,000 euros, 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 made 10,000 euros in profit. In other words, a „tax rate“ of 160%, where the tax is higher than the profit. You would have to take out a loan to pay the tax (or use your assets). Completely absurd!

A law as organized lawbreaking 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 as a law in the Bundestag and even cemented as part of the „Future Financing Act“ of the traffic light government is completely beyond me.

Tax court stops absurd profit taxation for futures transactions Fortunately, the courts are finally putting an end to this absurd behavior. Recently, a trader filed an appeal against a tax assessment notice and eventually filed a lawsuit in a much more severe case than described above.

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 offset restriction for futures transactions.

Quote: „The amount restriction on loss offsetting for futures transactions pursuant to Section 20 (6) Sentence 5 of the Income Tax Act in the version of the Annual Tax Act 2020 leads to unequal treatment for which, according to preliminary examination, there is no justified reason,“ reads the summary of the decision of the Rhineland-Palatinate Tax Court.

Final clarification only by the Federal Constitutional Court Is the law ineffective and will all losses from futures transactions be offset against profits as was previously the case? No. If you are affected by the problem, you still have to file an appeal against your tax assessment notice and possibly also file a lawsuit.

Because a final verdict on the law as such is still pending, this was only decided in a specific individual case. In the end, the Federal Constitutional Court must decide on the question of limiting the offsetting of losses from futures transactions.

However, the case clearly shows how amateurish 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 works from the beginning. I will provide tips on this tomorrow in this space.

The post Loss restriction: Investors need to be careful! appeared first on Investor Verlag.