By Kortney Christensen, CFP®, Executive Vice President, Director of Sales and MarketingPrint This Post
In 2016, we have had strong equity performance which may have generated some taxable capital gains. Before year end, check to see if you have other positions with unrealized losses to help offset some of your gains. Tax loss harvesting is a method of reducing your taxes by selling an investment where the value is below your cost basis. If desired, one way to maintain exposure to the market is to purchase another investment that is similar. In doing so, you maintain the risk and return characteristics of your portfolio while still harvesting the loss on the original investment.
Due to “wash sale” rules, you cannot purchase the same asset within 30 days of the sale of the original investment and recognize the loss. Also, to claim any losses against this year’s realized capital gains, you’ll need to sell your investments that have lost value by the end of the year.
In terms of netting your annual gains and losses for tax purposes, remember that all short-term gains and losses are first netted against each other. Similarly, long-term gains and losses are netted against each other. After this calculation, the two figures are combined to determine the overall net short-term or net long-term gain or loss. If the resulting figure is a loss, you can take up to an additional $3,000 of capital losses against ordinary income on your federal tax return. Any remaining losses must be carried forward to the next year.
Please remember, Benjamin F. Edwards & Co. does not provide tax advice, so it is important to consult with your tax professional for guidance tailored to your specific situation.