Selling losing stocks to avoid short term tax

Dec 12, 2006 4 Replies
R

Morning folks..



I had a question on reducing tax during short term stock trading. One of the ways to reduce the tax on the profits made during short term trading is to sell the losing stocks and buy them back after a month or so (assume same price in a month). The loss can be deducted from the profit..I am not very clear on the time stipulation on buying the same stock. What if you buy the losing shares some more before selling those again ?



Day 1: Stock A, Stock B Day2: A+, B- (i.e stock A is winning, stock B is losing) Day 3: I plan to claim the losses in B, but buy some more B. Stock B' Day 4: Sell B-, Sell A+ (sell all B- stocks bought on day 1, now I cannot buy more B's for another 31 days, but I just bought them Day 3)



What am I doing wrong here ?



Thanks! Novice



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P

You can designate stock lots to sell. For example I just did this (altough not within 30 days). I bought 500 shares of stock X, then I bought another 400 shares of stock X. I am losing money on the first lot (500 shares), but in the positive for the second lot. I just sold

500 shares, designating the first lot for selling. I will claim this lost on my tax return. In 30 days I will buy back the 500 shares.
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T

The 30-day period described in the wash sale rules runs in two directions, so it's really a 61-day period that you can't buy the stock...the trading day, the 30 days before, and the 30 days after.

See the FAQ on wash sales:

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-Tad

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R

Thanks. This is it! So it's really a 61 day window period. I knew something was wrong in my logic..

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W

Indeed. I use this to stay exposed to a losing stock (assuming I want to stay exposed) by buying more 31 days before the last trading day of the year, and then dumping my original holding for the tax loss.

Nice!

-Will

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