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Consider Taking Some Capital Losses - By John R. Bullis

Updated: Mar 30, 2023

If you make 100 decisions, it is not reasonable to expect all of your decisions to be good ones. If you make investments, it is possible some of them will turn out to not be winners. If you have a stock that is worth less than you paid for it, you could consider selling it before the end of the year to recognize a capital loss. On your individual income tax return, capital losses first offset any capital gains and then up to $3,000 can be deducted on the front page of your return. If your capital losses are more than you can claim that year, the excess carries over to the next year. The carryover continues until you have finally used up all of the capital losses, or you die. If a person dies with unused potential capital losses (could have been recognized if the stock had been sold), there is no deduction. If instead, the losses had been recognized by selling during your lifetime, your income taxes would most likely have been reduced. There is a special “wash sale” rule. It means if a stock, say IBM, is sold at a loss, you can not claim the loss if you buy the same stock within 30 days of the sale. You have to endure the risk that the stock will increase in value just after you sell it. But you can buy a similar stock the same day you sell the IBM stock. Since you did not invest in the same item you sold, the loss is allowed. There is no problem with selling a stock at a gain (profit) and buying it back right away. The “wash sale” rule only applies to losses. It doesn’t matter if your gains are short term and the loss will be a long term loss. All capital gains and losses are combined on Schedule D of form 1040. A loss will be a benefit whether it is a short term or long term capital loss. On the other hand, if you have only long term capital gains, maybe taking a capital loss in the same year is not so great. The long term capital gains have favorable tax rates. If your taxable income (after Itemized Deductions or the Standard Deduction and the exemptions) is less than $75,900 for a married couple or less than $37,950 for a single person, some or all of your long term capital gains may be taxed at zero rate. Maybe doing a draft 2017 return will help guide your decisions. Of course you do not want to let taxes rule your life. Do make reasonable decisions that improve your quality of life. Don’t let concern about your income taxes keep you from enjoying life. Did you hear “Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy.” Ernest Been Publisher

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