In America, virtually every financial media outlet encourages the average investor to invest in equities as his best opportunity for him to increase his net worth over time. When the stock markets are going up, this appears to be a safe and sound strategy, but when they collapse, such as in 2008, the investor becomes well aware, that markets are far more volatile, and far less secure, than he previously imagined. Additionally, even when markets move up, investors may have picked investments that did poorly and therefore loss money, as well as the fact, that investors can bet on either side of the market, whether it goes up or goes down, so while in general, when markets move up investors make money, your results may vary considerably.
While there aren't many people that enjoy paying taxes, all individuals would rather pay some percentage tax on a gain, rather than to have simply lost money on their investment in the first place, to which they will not owe any tax because they have instead lost money. Fortunately, for those losers, of which at some point, every investor has experienced this, the taxpayer is allowed to write off to the maximum of $3,000 of capital losses over and above any gains that he may or may not have recognized in that fiscal year. So if you made $10,000 on some of your investments but also loss $10,000 on some other investments, you don't have any tax liability on those investments at all. If, you made $10,000 on your investments, but loss $13,000 on some other investments, you have a $3,000 capital loss deduction. If, you made $10,000 on your investments, but loss $25,000 on some other investments, you are allowed to write off $3,000 in capital loss deductions, and carry-over the balance of the $12,000 loss for future years, to which you are limited to no more than recognizing a $3,000 loss in any given fiscal year.
The truth of the matter is when investors are encouraged to put their money into the stock market, year after year, in order to attain the funds necessary to retire and to thereupon live upon, is that some years are going to be bad years for investors, to which a paltry loss limit of $3,000, which has not been raised since 1976, is substantially too low. Now in situations whereupon the market moves up, there isn't a lot of hue and cry about raising the loss limits because these times, for most investors, are good, but those times do not ever last, and when the crash or the correction comes, $3,000, will appear to be ridiculously low.
The fact is that all the income that you make in a given year is typically treated as taxable income for that year, but because the capital loss limit is $3,000 in a given fiscal year, this means that all capital losses that you have in a fiscal year, will not be counted in that year, if those net losses are above $3,000. While our tax code allows an unlimited capital loss carry-over, this isn't going to do a whole lot of good for a taxpayer that dies in some future year without having availed himself of all of his capital losses, nor does it do that taxpayer any good in a year in which he lost a substantial amount of money, yet is limited to only writing off $3,000 of it.
The current tax loss limit of $3,000 is way too low, it should either be raised substantially to something like $100,000, or eliminated in its entirety, thereby allowing that taxpayer to more quickly write off a bad year in that year and not to suffer the indignity of paying more than what he really must to the tax authorities in a year to which his investments performed very poorly.