Claiming tax deductions for losses on capital investments

Capital losses can occur not only due to falling prices but also through the total loss of an investment following the insolvency of the debtor. If, for example, a loan is completely lost, this loss should be deductible as negative income from capital assets. After all, capital gains, such as profits from sales or repayments, must be taxed according to § 20 para. 2 no. 7 EStG.

Previous position of the tax authorities

The tax authorities have long refused to recognise losses from defaults. However, the tax courts of Lower Saxony and Rhineland-Palatinate have ruled that such losses can indeed be claimed for tax purposes. With the introduction of the withholding tax in 2009, all capital gains are taxable. This means, conversely, that capital losses must also be taken into account for tax purposes. There is no longer a distinction between income and capital levels. Both gains and losses on investments are therefore tax-effective (BFH rulings of 12.5.2015, IX R 57/13 and of 24.10.2017, VIII R 13/15).

Tip for loss offsetting

If you suffer a total loss on an investment due to the issuer's bankruptcy, you can claim the acquisition costs as negative income in your tax return. If the tax office refuses to offset them against other capital gains, file an objection to the notice and refer to the BFH rulings of 24.10.2017 and 12.5.2015.

Limitation of loss offsetting from 2020

Since 1.1.2020, the offsetting of losses in the event of a total loss has been limited to 20.000 Euro per year. Unused losses can be carried forward to subsequent years and offset again against income from capital assets up to 20.000 Euro per year (§ 20 para. 6 sentence 6 EStG).

This regulation applies to the default of capital claims, the write-off of worthless securities, or their transfer to third parties. It also covers sales transactions carried out for structuring purposes when the solvency risk of the investment has already materialised (BT-Drucksache 19/15876 of 11.11.2019).