Categories : Tax Issues


Tax Loss Selling- Introduction

Tax loss selling is what people with stock portfolios do to manage their income,  Toward the end of the year, they sell many stocks that have no chance of recovering to where they bought them.  They often balance the losses against the gains, so as to manage the capital gains tax.

Long term capital gains (made on stock held for more than a year) are taxed at very favorable rates (I'm sure that many folks know that.)  If you are in the 10% or 15% Bracket your tax rate on capital gains is 0%, but if you're in the 25% or higher bracket, your capital gains tax rate is 15%.  While 15% is very favorable compared to 25%, people still sell losers to offset winners thus minimize their capital gains taxes. 

Here's the thing:  Right now, the favorable Long Term Capital Gains tax rate (15% max) is scheduled to expire in on December 31, 2012, and will be replaced by a 20% Long Term Capital Gains rate.  Now Congress could change this law at any time before Dec. 31, 2013 and move it back to the lower 15% rate.  However, the country needs so much money just to pay the short term debt of the country, if the capital gain tax rate is not extended through 2012, don't bet that the politicians will lower the capital gains tax rate in 2013 especially if there is no change in the presidency.

My opinion would be that you should hold on to your stock and sell it next year (2013) when the capital gain tax rate is 20%.  You should offset the gain on some other stock that you want to cash in.  That way you avoid paying the 20% capital gain tax next year on the stock that is the winner.

Here's my recommendation:  If you're not attached to UBMI Stock, and if you have stocks you want to harvest (ie you want to sell them because they have nice gains and maybe the increase has run its course), then you should harvest the stocks with gains, and offset the gains by selling shares of UBMI.   This strategy will let you reap the gains of your good stocks and offset that gain with the loss of a stock (UBMI) that will probably not recover in the next 10 to 20 years. 

But use the Tax Loss Selling Strategy in 2013 when the Capital Gain rate is 20%.

 Posted on : February 4, 2012
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