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Savings on Personal Income Tax by offsetting Profits and Losses

People with losses pending to compensate in the IRPF (Personal Income Tax) can sell shares, real estate, investment funds, ... before the end of the year, thus allowing a compensation in time. This is a way of saving personal income tax by offsetting profits and losses, as detailed below.

How to save personal income tax, offsetting profits and losses

Those individuals who sell an item of their assets (a property, securities, etc.) incurring losses, can offset them against the personal income tax savings base for the year in which they occur and for the following four years. Firstly, with the gains of each year derived from the transfer of assets, and if this compensation results in a negative balance, with up to 25% of the capital gains of the year.

Subsequently, a first saving in tax is applicable, for example, if we sell before the end of the year with losses, then we can compensate with other capital gains produced during the year and even with up to 25% of the capital gains (interest, dividends, etc.).

Offsetting losses from previous years

Another way to save tax arises when taxpayers have losses from previous years that have not been offset and for which the maximum period for deductions is approaching (those generated in 2017). They may have an alternative to avoid losing the right to offset. If they hold shares, FIMs or other products, with latent gains, they can sell them, generate such gain, offset prior years' losses, and even buy them back afterwards:

  • Repurchase of the same securities does not affect the computation of the gain. The IRPF (Personal Income Tax) law prevents losses obtained when there is a repurchase in the following two months from being computed (to prevent fictitious losses from being generated), but says nothing about gains.

  • On the other hand, the purchase of the new shares will mean that they will have a higher acquisition value, while the new purchase value is consolidated.

If the shares are sold later, with an increase of the acquisition value, then the gain to be declared will be lower and the tax to be paid will also be reduced.

Moreover, if I have capital losses this year, then I can decide to sell with gains and offset them against each other.

Example of tax savings in personal income tax by offsetting profits and losses

By way of example. An individual carries forward a loss of 20,000 euros from 2017. Let's imagine that he has shares that cost him 80,000 euros and are now trading for 98,000 euros. He can sell them and buy them back for the same amount without paying IRPF (PIT). He will be able to compensate the losses for 18,000 that came from 2017. In this case IRPF (PIT) is not levied, as the tax is consolidating the new purchase of shares for 98,000 as the acquisition price.

Our Tax Department strives for the best way to save taxes for our clients. Write us for any questions or information. Our staff at Carrillo Asesores will be pleased to help you.


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