My stocks are down in value, as is the investment property I recently invested in. Does this scenario reduce my current taxes?
This is the question many of us have when we open the email from our investment advisor and see the current market value of a once thriving balanced portfolio. Or we torment ourselves, by opening the real estate app on our phones and see the dropping home prices. Can this situation impact my taxes positively?
The market value of both a portfolio or real estate property are not taxed, in the good times or bad. A tax event is triggered when the investment is sold. In the event a loss is realized from the sale, related tax savings may occur to the extent I am able to apply this loss against current year capital gains, carry back to a gain (up to 3 years), or carry forward the loss, indefinitely, to apply against future capital gains.
As such, there is no immediate impact on my taxes from a portfolio that is down along with the Dow Jones or TSX.
There is a temptation in this investment environment to sell a portfolio to trigger a capital loss as described above to carry back the resulting loss to 2021 possibly when significant capital gains taxes were paid. That can be a good strategy to get some taxes repaid and have something positive come out of a down market! The caution is you cannot buy the same investments back for at least thirty days. If you do this the losses will be denied by the CRA, when your taxes are assessed.
The general rule of thumb is do not sell low, unless you are able to apply the resulting loss against gains you have realized in the current year or last 3 years.
Quick Answer: No, the current taxes you owe are based on your income and any deductions you have taken in the last tax year. Any losses or reductions in value of your investments will not reduce your current taxes, but they may reduce your taxes in future years if you are able to claim a capital loss on your tax return, or carry back to claim against previous capital gains realized.
