Timing for using realized loss

[savory]

Hi,

Not long ago, I took over my investments from my FA. They were mostly invested in stock. I have began the transition to an ETF portfolio for my equities but want to get some feedback on a step that faces me now.

During my transition, I accumulated a decent size short term loss. My portfolio now is all positive in gains. The market has changed enough that I am losing confidence in some of the stocks and I am ready to sell. But, most have substantial gains. On a total basis my gains dwarf my loses.

I understand, not selling a stock that is losing value to avoid a capital gains tax hit is a bad idea. But is their a reason to maintain a 'bank' of realized losses or is the best thing to do is use them ASAP?

Thanks

[pb4uski]

I wouldn't let the tax tail wag the investment dog. IOW, if you decide that a stock is no longer a good investment for you, sell it. Worst case, your gains absorb your carryover losses and you pay 15%* on any remaining gain.

* usually 15%, can be 0% if your income is low enought or more than 15% if your income is really high.

One advantage of carryover losses is that $3k a year can be used agains ordinary income which is usually at a highr rate.

[RunningBum]

Everything pb4 said.

For myself, I plan to save the losses and use the $3000 every year against my income to give me a little more room before the ACA cliff. 6 years left, and I have more than enough losses to cover. If I had need of some money though, I would go ahead and use it to offset some gains, but I have other sources available to use first.

If I really felt I wanted to reduce my stock position, or stocks just became overweight due to growth, I would first do it in my Roth.

[VanWinkle]

Like Runningbum, I am using the 3000 loss yearly against ordinary income for the next 10 years.

[Sunset]

I learn a lot of valuable things here, just reading the forum.

[dmpi]

Losing money in the market is of course depressing, but as time passes carrying a large capital loss is actually empowering because not only do you get to claim $3000/year but you feel like you can sell your stock anytime and not worry about the resulting capital gains.

[VanWinkle]

Quote:

Originally Posted by dmpi Losing money in the market is of course depressing, but as time passes carrying a large capital loss is actually empowering because not only do you get to claim $3000/year but you feel like you can sell your stock anytime and not worry about the resulting capital gains.

Tax loss harvesting does not involve losing money, only embracing a tax advantage and reinvesting right back in a market that will eventually rise to prior highs. It does reset your basis at a lower figure, but in a taxable account that you may pass to heirs, this can be a valid approach.

Best to you,

VW

[RE2Boys]

Remember that if you have realized losses, you must report and use those losses to offset gains and or offset up to $3000 of other income as soon as possible in the current or following years. You can not choose to skip a year and save the losses for some future year.

[savory]

Quote:

Originally Posted by RE2Boys Remember that if you have realized losses, you must report and use those losses to offset gains and or offset up to $3000 of other income as soon as possible in the current or following years. You can not choose to skip a year and save the losses for some future year.

Perhaps, I am not understanding your post. Here is what I understand about capital loss. Are you addressing something different than this? TX

Does capital loss carryover expire?

Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted. Due to the wash-sale IRS rule, investors need to be careful not to repurchase any stock sold for a loss within 30 days, or the capital loss does not qualify for the beneficial tax treatment.May 25, 2020

[Out-to-Lunch]

Quote:

Originally Posted by savory Perhaps, I am not understanding your post. Here is what I understand about capital loss. Are you addressing something different than this? TX Does capital loss carryover expire? Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted. Due to the wash-sale IRS rule, investors need to be careful not to repurchase any stock sold for a loss within 30 days, or the capital loss does not qualify for the beneficial tax treatment.May 25, 2020

It is best to go right to the source: https://www.irs.gov/publications/p55...blink100010729

The way I read this is "Use it or lose it!"

Quote:

Capital loss carryover. If you have a total net loss on line 16 of Schedule D (Form 1040 or 1040-SR) that is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you had incurred it in that next year. If part of the loss is still unused, you can carry it over to later years until it is completely used up. When you figure the amount of any capital loss carryover to the next year, you must take the current year's allowable deduction into account, whether or not you claimed it and whether or not you filed a return for the current year. When you carry over a loss, it remains long term or short term. A long-term capital loss you carry over to the next tax year will reduce that year's long-term capital gains before it reduces that year's short-term capital gains. Figuring your carryover. The amount of your capital loss carryover is the amount of your total net loss that is more than the lesser of: Your allowable capital loss deduction for the year, or Your taxable income increased by your allowable capital loss deduction for the year.

[RE2Boys]

Quote:

Originally Posted by savory Perhaps, I am not understanding your post. Here is what I understand about capital loss. Are you addressing something different than this? TX Does capital loss carryover expire? Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted. Due to the wash-sale IRS rule, investors need to be careful not to repurchase any stock sold for a loss within 30 days, or the capital loss does not qualify for the beneficial tax treatment.May 25, 2020

You can not choose to skip a year and not use a realized capital loss carry forward. If you had losses exceeding $3000 in 2021, you can not ignore these losses in 2022, you must use them to the maximum extent allowable. You can't cherry pick what year you choose to report and use these losses.

[savory]

Thanks RE2Boyss and Out-to-Lunch for the clarification!