Capt. JG wrote:
"Dave" wrote in message
...
On Mon, 24 Nov 2008 17:21:26 -0800, "Capt. JG"
said:

Please show me how I would account for my supposed 401K losses when it
comes
time to file my return. Should I deduct the $100K?
Different question entirely. There are significant differences between the
way things are reported for tax purposes and the way they are accounted
for
under generally accepted accounting principles. Else there would be no
such
thing as loss carry-forwards and deferred tax assets. So you report the
losses the same way you accounted for the gains, if any, you had before
the
market decline.

There are also major differences between cash accounting and accrual
accounting. Accrual accounting is generally designed to eliminate the
effect
of the accident of when cash is received or paid, and reflect the
underlying
economic impact of events occurring during a period. On a cash basis, you
wouldn't record a gain or loss on an asset until the asset is sold. But if
you let that fact obscure the underlying economic reality you are simply
fooling yourself..


So, according to the IRS no loss took place. According to my regular bank
balance, no loss took place. According to my ability to buy bread with cash
on hand or with my credit card, no loss took place. So, according to my
credit score, nothing has changed.

This I would argue, say you want to start up a nifty new
environmentally friendly business recycling used (insert whatever here),
you need 750K to start up your plant.

You don't have 750K on hand, so you want to borrow it. A year ago you
had a house with market value of 400K and a 401 with a value of 600K,,,
if you put these up as a collateral, the loan should be a cinch.

This year your house has a market value of 200K and your 401 is now only
worth 400K,,, the bank may well think a bit differently about lending
you 750K....

Cheers
Martin

"Marty" wrote in message
...
Capt. JG wrote:
"Dave" wrote in message
...
On Mon, 24 Nov 2008 17:21:26 -0800, "Capt. JG"
said:

Please show me how I would account for my supposed 401K losses when it
comes
time to file my return. Should I deduct the $100K?
Different question entirely. There are significant differences between
the
way things are reported for tax purposes and the way they are accounted
for
under generally accepted accounting principles. Else there would be no
such
thing as loss carry-forwards and deferred tax assets. So you report the
losses the same way you accounted for the gains, if any, you had before
the
market decline.

There are also major differences between cash accounting and accrual
accounting. Accrual accounting is generally designed to eliminate the
effect
of the accident of when cash is received or paid, and reflect the
underlying
economic impact of events occurring during a period. On a cash basis,
you
wouldn't record a gain or loss on an asset until the asset is sold. But
if
you let that fact obscure the underlying economic reality you are simply
fooling yourself..


So, according to the IRS no loss took place. According to my regular bank
balance, no loss took place. According to my ability to buy bread with
cash on hand or with my credit card, no loss took place. So, according to
my credit score, nothing has changed.

This I would argue, say you want to start up a nifty new environmentally
friendly business recycling used (insert whatever here), you need 750K to
start up your plant.

You don't have 750K on hand, so you want to borrow it. A year ago you had
a house with market value of 400K and a 401 with a value of 600K,,, if you
put these up as a collateral, the loan should be a cinch.

This year your house has a market value of 200K and your 401 is now only
worth 400K,,, the bank may well think a bit differently about lending you
750K....

Cheers
Martin


Right. I agree with you. I don't believe you can use your 401K as collateral
on a business loan, but that aside, the fact that you don't have the asset
value to borrow against isn't the same as a direct dollar loss. It's a
separate decision to start a business. The value of the house and 401K has
certainly declined, but it can't be counted as a loss until you try to cash
out at a lower value. We've seen housing prices fluctuate quite a bit. Let's
say the original cost of my house was $300K. Let's say I put down $100K with
a $200K loan. Over the years it appreciated in value (on paper) to $1M. Wow.
I feel rich. I "made" $700K. Except, I didn't make anything. Not yet. I
decide to sell and get $1M. I made $700K. Cool. Or, I don't sell. I wait,
thinking it'll go higher still, but it goes down in value. Now, it's worth
$200K. Bummer. I feel poor. But, I haven't lost any money. Unless I'm
desperate because I can't make the mortgage payments... I refinanced when
the house was up in value. I lost my job. Whatever. Now, I have to sell so I
can feed and clothe my seven kids. Now, I've lost money.

Sure, there's a lost opportunity cost. I couldn't start that business. Bad
for me, bad for the economy. But, if I hold onto the property and wait out
the downturn in the stock market, I have a good chance of feeling rich
again. Maybe next time I'll sell or cash out. Or, I might not do anything
and they'll plant me in the yard when I'm done, although I'd prefer
scattering my ashes at sea. LOL

--
"j" ganz @@
www.sailnow.com