Harvesting Losses in your Stock Portfolio to Offset Taxes?

By Christopher L. Hudson, CIMA

Are you putting the volatility of the current market to work for you with your outside, or taxable, accounts?

Tax-loss harvesting is the process of using losses in your portfolio to offset profits. A popular technique in volatile market environments. When the market falls, you can sell underperforming investments and use those capital losses to offset any capital gains you have taken in the year from more profitable investments. If you have more capital losses than gains, you may be able to use up to $3,000 a year to offset ordinary income on your federal tax return. Any losses above $3,000 could be carried over to future years.

If replacing the sold investment you need to be aware of the IRS “wash sale rule” which prohibits you from rebuying “a substantially identical investment” within a 30-day window before or after the sale. It can typically make sense to buy an exchange traded fund or mutual fund that tracks a similar index or investment style versus using an individual stock ( or sitting out of the market for 30 days to repurchase the stock you just sold).

If your taxable income is low enough, you may qualify for a 0% long-term capital gain rate when taking profits in the portfolio.

Any opinions are those of Christopher Hudson and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Asset allocation and diversification do not guarantee a profit nor protect against a loss. Raymond James and its advisors do not offer tax or legal advice. You should discuss tax or legal matters with the appropriate professional.