Just the Tip:
Sell a losing investment in a taxable account, and the loss cancels gains you’ve taken, while up to $3,000 a year beyond that ($1,500 if filing separately) comes off ordinary income. Reinvest in something similar but not substantially identical, and don’t buy the same investment for 30 days on either side of the sale.
A losing position in a taxable brokerage account does nothing for your taxes while you hold it, and only a sale by December 31 counts on this year’s return. The trade date, not the settlement date, decides the year.
The IRS subtracts your capital losses from your capital gains first. If losses are left over, up to $3,000 of them ($1,500 if you’re married filing separately) comes off your ordinary income, and the rest carries forward to later years.
Say you’ve taken $4,000 in long-term gains this year and hold a fund that’s down $7,000. Selling it wipes out those gains and deducts the other $3,000 from your income. At a 15% capital gains rate and a 22% tax bracket, that’s $1,260 less tax this year, most of it postponed rather than saved.
Reinvest the proceeds right away in something similar but not substantially identical, such as a fund built on a different index, so your money stays in the market. The IRS weighs what’s substantially identical case by case, which is why a fund on a different index is a safer swap than another fund on the same one.
Buying a substantially identical investment from 30 days before the sale through 30 days after it triggers the wash sale rule. The loss is disallowed and added to the new shares’ cost, which only postpones it. A purchase by your spouse counts too, and a buy inside your IRA or Roth IRA erases the loss for good.
Harvesting mostly delays tax rather than erasing it, since the replacement starts at a lower cost basis, the purchase price your gain is measured from, and will show a bigger gain when you sell. That delay still pays. The tax you put off stays invested, and a loss deducted against ordinary income now may come back later as a gain taxed at a lower long-term rate. Set a reminder for early December, when there’s still time to sell and to check the prior 30 days for purchases.
Editorial & Advertiser Disclosure: The editorial content on this page is not provided, commissioned, reviewed, approved, or otherwise endorsed by any advertiser. Opinions expressed here are ours alone, not those of any advertiser. The offers that appear on this site are from companies that compensate us. That compensation may influence which products we cover and where and how they appear on a page – including the order in which they appear – but it does not influence our evaluations, ratings, or opinions. We do not include every company or offer available in the marketplace.
Related:
Publisher: Source link
