Loss harvest question

Financial Planning Tax Strategies
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On selling stocks at a loss: do I need to have sold profitable stocks to take advantage of a loss, or will a loss simply reduce my total taxable income? In other words, income derived from my regular pay and not any selling? Thanks…

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I don’t purport to be an expert, but it is my understanding that you can only write-off losses against gains. And they have to match-up (i.e. a long-term loss matched to a long-term gain, a short-term loss to a short-term gain…because they’re taxed at different rates). You can also carry-over a loss if you didn’t have sufficient realized gains, but I don’t know for how long. At least to the next tax year, but maybe not beyond that(?).

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I’m also not an expert here, but I believe that if you have no short / long cap gains in a given year to offset losses, then you CAN write off up to $3,000 per year against income derived from other sources.

I’ve been writing off losses for a number of years now since losing a fair amount back in 2008… $3,000 each year. I believe they are called carry-forward capital gains losses.

'38Packard

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I’m not an expert either but 38packard is correct from my own experience unless the tax laws changed this year…doc

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Assuming you don’t have a wash sale**, capital losses have a priority order:

  1. Long term losses offset long gains, and short term losses offset short term gains
  2. Any remaining losses are added together, as are any remaining gains, and remaining total losses are used to offset the remining gains
  3. Up to $3000 of any remaining losses are used to offset ordinary income
  4. Any remaining capital losses are carried forward to future years, and will be used in the same priority order in future years.

So the advice upthread that gains and losses must be matched is not totally correct - they are matched initially, but if you have losses leftover after doing that, then they are used against non-matching gains before being applied to other income.

** A wash sale occurs when you buy a substantially identical stock within 30 days before or after you sold the stock at a loss. If you do that, then the loss would just be used to adjust the basis in the stock that was purchased.

AJ

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Thanks for all these replies, they all helped me. I appreciate the info, and hope it helps others…

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