A friend of mine (Eric Jang) has proposed a mechanism to game the “Donating Appreciated Securities” aspect of US tax law. Say Alice and Bob both want to send $100 to Givewell, and deductions are worth 30% to them. If they just sent the money, Givewell would get $200: $140 from Alice and Bob, and $60 from the US Govt.
Instead, they create a security that costs $100 and says “In 1 year, flip a coin; the winner gets $200”. The winner could send that to Givewell and take a $60 deduction. Meanwhile, the loser can take a $30 capital loss on their taxes. In effect, Givewell is still getting $200, but now Alice + Bob only pay a total of $110, with the US Govt contributing $90.
I’m not an accountant, and don’t know if it actually works this way—but if so, this might be a natural fit for the EA Funds Donor Lottery haha.
You could do something very similar by having one person short a liquid security with low borrowing costs (like SPY maybe) and have the other person buy it.
The buyer will tend to make more money than the shorter, so you could find a pair of securities with similar expected return (e.g., SPY and EFA) and have each person buy one and short the other.
You could also buy one security and short another without there being a second person. But I don’t think this is an efficient use of capital—it’s better to just buy something with good expected return.
However, excess capital losses can be rolled over. So if you expect to ever incur taxable capital gains in your lifetime, then incurring capital losses now can still be good tax planning.
A friend of mine (Eric Jang) has proposed a mechanism to game the “Donating Appreciated Securities” aspect of US tax law. Say Alice and Bob both want to send $100 to Givewell, and deductions are worth 30% to them. If they just sent the money, Givewell would get $200: $140 from Alice and Bob, and $60 from the US Govt.
Instead, they create a security that costs $100 and says “In 1 year, flip a coin; the winner gets $200”. The winner could send that to Givewell and take a $60 deduction. Meanwhile, the loser can take a $30 capital loss on their taxes. In effect, Givewell is still getting $200, but now Alice + Bob only pay a total of $110, with the US Govt contributing $90.
I’m not an accountant, and don’t know if it actually works this way—but if so, this might be a natural fit for the EA Funds Donor Lottery haha.
You could do something very similar by having one person short a liquid security with low borrowing costs (like SPY maybe) and have the other person buy it.
The buyer will tend to make more money than the shorter, so you could find a pair of securities with similar expected return (e.g., SPY and EFA) and have each person buy one and short the other.
You could also buy one security and short another without there being a second person. But I don’t think this is an efficient use of capital—it’s better to just buy something with good expected return.
Note the IRS currently limits capital loss deductions to $3,000 (individuals and married filing jointly) or $1,500 (married filing separately)
However, excess capital losses can be rolled over. So if you expect to ever incur taxable capital gains in your lifetime, then incurring capital losses now can still be good tax planning.