Investment Updates
When To Harvest Gains, When To Harvest Losses
Published Friday, October 17, 2014 at: 7:00 AM EDT
It's harvest time again! The end of the year often presents golden opportunities for investors to "harvest" capital losses by selling stocks that can offset capital gains they realized earlier. But sometimes the reverse is called for—harvesting capital gains to make good use of earlier losses. Handling this the right way could have a major impact on your current tax liability.
Start with the basic premise that capital gains and losses from securities transactions are treated as short-term gains or losses if you've held the assets a year or less and long-term if you've owned them longer. Gains and losses are "netted"--losses are subtracted from gains--when you file your tax return. But you'll want to act months earlier, deciding to realize gains or losses, either short-term or long-term, depending on what works best in your particular situation.
If you still show a capital loss for the year after using your losses to offset your capital gains, one option is to use the excess loss to offset up to $3,000 of ordinary income, now taxed at rates as high as 39.6%. If that still doesn't use up all of your losses, you get to carry over the remainder to the following year and maybe the one after that and so on until the loss is exhausted.
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