Tax loss harvesting

by Evan on October 28, 2009

It is that time of the year again when I go over my client’s taxable portfolios and look for any opportunities to harvest tax losses or offset gains taken previously in the year with losses. The way this works is fairly straight forward. If you have a stock, mutual fund, or ETF that is below where you purchased it, and it is held in a taxable account (ie not a retirement account), you can sell the equity and take a loss. This loss can be offset against other gains that you have, or in the case that you have no other gains, you can use up to $3,000 worth of the losses directly against your taxable income. Furthermore, if you have more than $3,000 in losses that do not offset with gains, you can carry the losses forward to any future tax year. There is no limit on the number of years the losses can be carried forward to. However, understand that you must use the losses to offset capital gains in future years before you can apply the losses against your normal taxable income.

The best thing about harvesting losses is that you can buy the same security back 31 days later and start all over again. Or you can buy a similar security to the one you sold right away and take your losses while leaving your portfolio setup roughly the same way as before.

If you are interested in learning more about this process, please feel free to contact me.

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