Tax Loss Selling

Selling assets and realizing the capital gains from the sale is always something that you, as an investor, strive for. But what to do with assets that if sold would generate a loss? You can turn that loss into a win through tax loss selling.

If you have sold some assets and realized capital gains in the year, and you are holding other assets with unrealized losses, consider selling them as well. This will allow you to realize losses to offset the capital gains. This is often referred to as "tax loss selling." Tax loss selling usually takes place at year-end, when an investor knows his or her net taxable capital gains for the year. Capital losses realized during the year offset capital gains realized during the year for a net capital gain or loss. A net capital gain is taxable in the year. A net capital loss may be carried back three years or forward indefinitely to apply against net capital gains.

With tax loss selling, the selling transaction must settle before the last business day of the year. (Given a three day settlement period, implies the deadline is before Christmas Eve, but why push it?) In addition, you should be aware of the superficial loss rules. For example, do not repurchase the losers within 30 days before or after the sale; alternatively, consider repurchasing similar, but not identical, securities.

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