Market Beat: It’s time again to talk about year-end tax selling
As the year comes to a close, many investors may be thinking about rebalancing their portfolios or taking some profits or losses for tax purposes.
If you have assets in a taxable account and are considering doing some buying or selling before the year ends, you should be aware of the potential tax consequences.
If you have a profit in a stock and want to sell it, you’ll incur a tax liability. If you’ve held the stock for more than one year, it will be taxed as a long-term capital gain. If you’d held it less than a year, the sell will be classified as a short-term capital gain.
In the event you decide to sell off a stock with a loss, the same rules apply; it will either be classified as a long-term capital loss or a short-term capital loss. Short-term gains are taxed at the taxpayers top marginal tax bracket.
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Capital gains and losses offset each other, so by selling off some winners and losers during the year, they can cancel each other out.
So, if you had a gain of $2,000 in stock A and a loss of $2,000 in stock B and had held them both for over one year, if you were to sell them both, the net long-term capital gain would be zero.
The most you can write off in any one year is $3,000, so if you have a holding with a loss of over $3,000 and sell it, you can write off $3,000 this year, but have to carry forward the rest of the loss into future years.
The taxman also has a rule known as the “wash sale” rule. The wash sale rule states that if you sell a stock, you have to wait at least 31 days before you can re-purchase it or a substantially identical security, like an option on that stock.
So, if you want to take a profit, or a loss, on a stock this year for tax reasons, but want to re-establish a position in that stock with a new cost basis, you’ll have to wait at least 31 days.
Remember, taxes are just one consideration; if you’re going to do some repositioning, please consult your tax adviser for advice on your individual situation.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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