Item — HN Reader

Any idea how long the tax "credit" against the loss is in effect for? ie if I take a loss of $100k this year on my options and make a capital gain of $200k in 10 years time can I offset that gain w/ the $100k loss?

Will speak to an accountant either way but keen to hear your perspective.

2 comments

So for reference I had a really large $300K+ loss in 2001 from this sort of thing :-). And it isn't a "tax credit" (that triggers different accounting widgets) it is a "capital loss". And basically you can carry it year to year to year for as long as necessary. In my case I had some gains from the next company I joined which I could offset with that loss I was carrying (these were gains after paying AMT on stock options exercised, and it had gone up quite a bit since I had exercised it, so all of that latter gain I got to "keep" by offsetting it with the loss from 2001.

Of course had that not been the case I would have been writing off $3000 a year against my income for slightly more than 100 years :-(

That seriously hurts.

And the ability to carry those losses forward is actually not present everywhere so to some extent you're still lucky, it could have been much worse.

Well in '99 it felt great, had been a acquired and my founders stock was worth quite a bit after I exercised it, of course I couldn't sell it until after a holding period ...

I always joke that if I ever invent time travel I would go back to that date and figure out some way to sell puts or something which would have locked in the pre-crash value. And I was fortunate that I could sell some stock and was able to pretty much cover the tax bill so at the end of the day after everything went pear shaped I was just sitting on a huge capital loss. I continue to feel fortunate that I came through the dot com crash wiser but without a giant pile of debt or tax liabilities.

One of my peers had taken on a huge debt to build their dream house in the Santa Cruz mountains which they were going to pay off with their stock proceeds when the house was done. They ended up basically penniless trying to unwind that. When you are in a disaster and the person laying next to you is so much worse off than you are you feel very grateful for what you have left.

Time will tell if we see some more people who have these experiences as we unwind the Unicorns which can't survive.

I know a lot of people that felt great 'on paper' in '99. I felt silly in more than one way for not joining the crowd and exchanging our company for paper in another (quite a few offers), but it just didn't feel right. None of those companies were solid to me (or were run by MBA types without any idea of what they were doing) and the idea of giving up control of our future to a company run by someone like that didn't sit right either.

Things went very fast from there and before we knew it all our competitors had simply vanished, right along with their paper gains. A lot of people that were riding high one day were back where they started in '95 or worse, we simply got lucky.

I mortgaged the house that I'd already paid off and bought out the other shareholders, from there it took a long time to make any serious profits but in the end it did and the final sale of the main domain was the icing on the cake. Crazy wild ride. But in another universe you're sipping champagne on your second yacht and I'm a penniless dude run into the ground by a well funded competitor.

It wasn't all that sure which way the future was going and all that tipped off that things were going to get ugly real soon was a single missed cheque from 24/7 media. I figured if they can miss a payment they might go under entirely and they actually did about 6 months later. By then we were more or less ready for it.

We're seeing a repeat of this kind of sillyness right now, in many ways. But there is a big difference, there is also a lot of actual validation, and real underlying value. Just a couple of totally overblown companies that will likely spoil the IPO market and some areas of investment. The rest of us will survive just fine, I don't think we'll see a repeat of march '01.

My tax accounting is rusty but my understanding is that unused AMT credits carry forward indefinitely and become refundable after three years. Regular long-term capital losses can also be carried forward indefinitely, offsetting capital gains and up to $3,000 of ordinary income per year.