Say I have realized $20K in short term losses. Say I have $10K in long term gain, unrealized.
I would like to have about $10K in short term losses. Should I use the $10K in long term gains to do the offset, or am I missing some tax advantages by doing this (I am in the 20%-28% tax bracket)
Mel
And no realized long term losses?
Why?
In general, it's a bad idea to base your investment decisions mostly on tax considerations. If you have a choice to make where the only significant difference is tax, by all means choose the more tax-efficient option. But make sure that it's really an "all other things equal" situation.
There's not generally much tax benefit to reducing your capital losses. You can only deduct $3K net loss in any particular year, but you can carry the excess forward until you die. So unless you think you're likely to die before you're able to use up the loss, there's not much point in minimizing it.
Once you have realized losses in the bank, it makes it easier to make decisions about selling appreciated securities. You can make those decisions solely on whether you think they're still good investments, not on whether you'll have the cash to pay the capital gains tax, because you'll be netting the gains agains the losses you already have.
So my recommendation is: Sell and take the gain if you think that security has probably peaked and this is a good time to sell, and be happy that you won't have to pay tax on the gain. Don't sell just to reduce your $20K loss to $10K.
Have something to add? Share your thoughts — no account required.
Ask the community — no account required