Not all investment losses have to be downers. Tax-loss harvesting offer investors some savings if they sell losing positions in a brokerage account. Know the benefits and risks before getting into it.
Tax-loss harvesting is the act of realizing losses in a brokerage account to offset capital gains. Leftover losses can offset up to $3,000 of ordinary income in a year.
Tax-loss harvesting is a strategy in which investors deliberately incur losses in a taxable account by selling off investments that have fallen in value."If we had big year for equities and we're taking a gain, can we free up some losses to offset it?" asked Michael Landsberg, CPA and member of the American Institute of CPAs' Personal Financial Planning Executive Committee.
To maintain the portfolio's allocation, the investor can buy a similar asset to replace the one sold, provided she adheres to theIf it goes beyond a certain threshold, it leads to concerns around churning the portfolio, generating trading fees and getting the overall portfolio out of wack.That means that if you sell aand buy the same or similar security within 30 days before or after the sale, the IRS won't allow you to claim the loss on your tax return.
Finally, investors and advisors should be cognizant of the applicable tax rates. They're key in determining how much you owe or how much you save from selling losing positions.
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