When can investment loss be used

Hi all

Back in February 2006 I was suckered into a bad investment. It was a 25k investment that was going to pay out principal and ROI 6 months later. Money was to be used collectively with other funds raised in some foreign trading. I still have not seen my principal or any interest on my money. I am still in contcat with the investement company and I am doing anything I can to get my money back, but at this point I have accepted it as lost money.

My question is when and how can I use this loss against my income as a tax write off? What will the implications be if I evenually get my money back?

Any input would be much appreciated.

Here’s my guess and other tax guys can agree or disgree, comment, etc.

I’m guessing that you can’t write the stuff off yet… why? because you’ve got to somehow truly establish the loss. (And this may be awkward because the promoter may not yet be ready to admit the money is gone.)

At the point that you do realize and recognize the loss, you’ll be able to write off the $25K loss against any capital gains you have in that year…plus another $3000 of the loss against your other regular income.

EXAMPLE: If you have $5,000 of capital gains for that year from other investments, you’ll be able to write off (net) $5000 of the loss against that gain (thereby reducing gain to zero sort of)… and you’ll still be able to write off another $3,000 against your ordinary income.

Note, too, that this means if you never have any other capital gains, you’ll need to write off the $25K in $3000 chunks over the next eight or nine years.

Any leftover capital loss will get carried forward to future years and used in the same way I’ve described in preceding paragraph.

WAR STORY: I see returns that show and have friends with large capital loss carryforwards that they’ll probably never be able to use… E.g., if you have $3M of capital loss carryforwards and a $1M of net worth outside IRAs, etc., you may never be able to use up the capital loss carryforward.

BTW, you may want to have a tax pro do the return. There are some circumstances ( and the code sections escape me right now ) where you can write off larger losses.

Thanks for the info. Yeah I will have my tax firm look at it, but I wanted to get the basic scoop on it before I talk to them.