Tax Loss Harvesting

I see this mentioned as a strategy but I’m confused with it.

I can understand later in the year you might have $10K in gains and you have a stock with a $10K loss and you sell it to cancel out the gain.

Otherwise if you sell a stock you bought at $100 for a $10 loss at $90 and then (assume this is possible) buy an equivalent stock at $90 aren’t you simply exchange a possible write off now, for a larger tax gain later? Since now your stock purchase occurred at $90 instead of the original $100.

Is this just a way to defer your gains as long as possible? Or am I missing something?

(I know some people seem to play lose and fast with “equivalent”, such as selling one SP500 ETF with another since the IRS doesn’t seem to examine this closely.)

Thanks
Rich

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I think most agree that cash in your pocket is much better than paying it out in taxes.

Yes, with tax loss selling you are deferring taxes to a later date. But perhaps investing that cash will give you better returns.

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Otherwise if you sell a stock you bought at $100 for a $10 loss at $90 and then (assume this is possible) buy an equivalent stock at $90 aren’t you simply exchange a possible write off now, for a larger tax gain later? Since now your stock purchase occurred at $90 instead of the original $100.

Yes, with using $3,000 of the loss against other income each year. The current decrease in taxes might be of more value than paying the capital gains in the future.

Otherwise if you sell a stock you bought at $100 for a $10 loss at $90 and then (assume this is possible) buy an equivalent stock at $90 aren’t you simply exchange a possible write off now, for a larger tax gain later? Since now your stock purchase occurred at $90 instead of the original $100.

If you buy an “equivalent” stock, you get to reduce your taxable income now by up to $3000 at ordinary rates for a future tax liability that could be at capital gain rates. Wash sales require “substantially identical” securities.

Ira

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