I recently sold a business in the 7-figures range and will pay capital
gains taxes in 2022.
I also have a short-term stock X position with an unrealized $25K loss
and a long-term position in stock Y with substantial unrealized gains.
I don’t really want to sell my position in X, however I figured since I
have plenty of cash, I could purchase a new position in X and then sell
my old position at a short-term loss of $25K.
My question is whether if makes any sense to ‘create’ a short-term loss
in 2022. Can I apply this loss to 2022 either against the sale of my
business or by selling enough of my long-term Y position gains to
offset the loss?
Capital gains are capital gains. Gains/losses from the sale of your business and sales of stocks all add up on your Schedule D, and in the end, short term losses are allowed to offset long term gains, and vice versa. So a short term loss of $25k in X would offset $25k of your total long term gains, be they from the business or from the sale of Y. I will point out that if you’re already going to be paying capital gains at the 23.8% Federal rate* on the business (which seems likely, unless your basis in the business is also at least 7 figures), creating an additional capital gain by selling Y seems like it would be counterproductive, unless you believe a significant portion of the gain in Y will disappear before you sell in a future year, or you believe you will also be paying capital gains taxes at the 23.8% rate in those future years.
That said - your plan to purchase a new position in X and then sell your current position in X will create a wash sale, unless there is at least 30 days between the sale and the purchase transactions of the two different lots. If you create a wash sale, the short term loss would become part of the basis in your new position in X, and could not be claimed on your tax return until you actually sell that lot of X (unless, of course, in doing the sale, you create another wash sale by buying another position in X within 30 days before or after another loss sale).
Obviously this will be handled by a tax professional, but I’m asking
in preparation before consulting with them.
You need to consult the tax professional before you do any transactions in X to attempt to create a loss and/or keep your ownership in X, and before you sell any Y. I hope you consulted the tax professional prior to selling the business. They might have been able to propose strategies on selling that would have resulted in less taxes owed.
*The 23.8% rate consists of the capital gains rate of 20% that applies to MFJ filers over $500k, MFS filers over $250k and all other filers over $400k; plus the 3.8% NIIT surcharge that applies to MFJ filers over $250k, MFS filers over $125k and all other filers over $200k.