Sold stock on Dec 31, settlement date is 2011, when is tax date

Not only is it permitted, it is required...you use the trade date, not the settlement date.

Those losses could reduce taxable income by $3,000 per year. Instead you have "wasted" them on low taxed long term capital gains which put no money in your pocket. It just set your basis higher. They can also be used to offset short term trading gains in the future unless you use them up with long term gains.

ed

Ed:

I think you misread my OP. I wanted to be sure that the gain that I had could be used to offset some carried-forward capital losses, in my

2010 tax return.

Unless you're covering a short position. Then you do use the settlement date.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

I think you missed Ed's point. I'll restate it. As everyone noted, trade date controls the year you report the sale. If the sale you asked about was a long-term gain, you cost yourself tax money by applying part/all of your capital loss carryover to it. The carryover goes from year to year on Schedule D, and if the bottom line of Schedule D is a loss, $3,000 of that loss goes to line 13 of your

1040, where it reduces ordinary income. The process continues from year to year until the loss is used up or you die. If your Schedule D bottom line showed a gain, the long-term portion of that gain would be taxed at a special lower rate.

This does not necessarily mean that your December 31 sale was a mistake. If you sold because your investment criteria said, "Sell!" it was the time to sell. OTOH, if you sold just to use some of your carryover, you goofed unless you planned on dying by midnight, in which case you goofed anyway since you're still with us. Don't let the tax tail wag the investment dog.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Add three words: Unless you're covering a short position at a loss ....

Phil

I think that's too harsh.

OP stated there was already a loss coming into last year.

That loss has to be claimed, and carryover loss will always be used to cancel gains. If you're suggesting never to claim a long-term loss while ST carryover exists, I believe that's just too harsh.

It all depends on the numbers.

If there is a $10,000 loss coming in, and a $20,000 LTCG, then by selling Dec 31, taxes are paid on $10,000 LTCG. Delaying until Jan 3 to sell, in the first year taxes on $3,000 of ordinary income are saved; in the second year, taxes on $13,000 LTCG are paid. Given that the taxes on $3,000 ordinary income are much higher than on $13,000 LTCG, this is better.

However: that assumes static tax rates, among other issues. If LTCG taxes will increase, taking the gain earlier could be better.

If the numbers are the other way around, $20,000 loss carryforward and $10,000 LTCG, then it doesn't matter; there will still be $3,000 taken against ordinary income.

Seth

Sorry to have been away for several days. I have a large enough long term capital loss from 2008 to carry over a couple more years even with decreasing it by the $3000 each year for a couple of years. Thanks for all the responses.

So a loss you take this year, a profit you report next year? Are there any other cases where the tax code is so generous?

Seth

You have that backwards. Since settlement date is after trade date the rule means the loss gets deferred to the following year (when covering a short position at a loss when the trade date is in year X and the settlement date is in year X+1).

-- Rich Carreiro snipped-for-privacy@rlcarr.com