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Old 12-21-2005, 04:07 PM
KaneKungFu123 KaneKungFu123 is offline
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Default Manipulating Taxes with stock market win/losses

lets say you are in a +30% tax bracket.

if you hold a stock less then a year it will be taxed as income at the +30% rate. if you show losses, then your income will be lowered and you will be getting back 30% of your losses in a tax cut.

so if you hold your winning stocks more then a year you pay 15% taxes, so...

lets say you hold a large SP500 ETF and after 364 days it is a loser. itd be a good idea to sell it now, even if you are going to buy it back tomorrow. The $30 bucks in transaction fees are outweighed by the tax advatanges...

is this correct?
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Old 12-21-2005, 04:22 PM
DesertCat DesertCat is offline
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Default Re: Manipulating Taxes with stock market win/losses

Some important issues to consider. If you buy it back tomorrow the transaction won't count for tax purposes. The IRS ignores sale/repurchase of "similar securities" if they take place within 31 days of each other. It's called the "wash sale rule" and you can look it up on the IRS's pretty accessible web site.

Another issue is that you can only write off $3k of capital losses per year against ordinary income. You need other capital gains to save more than that. If you have other short term gains, then harvesting losses will save you the 30%. But if your other capital gains are all long term, then harvesting losses only saves you 15%, the long term rate.

And you are restarting the capital gains clock on your losers, so if you sell them for a profit within 12 months, your move today may have cost you a lower long term capital gains rate next year.
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Old 12-21-2005, 04:26 PM
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Default Re: Manipulating Taxes with stock market win/losses

Maybe, for two reasons.

1) Short-term losses can be deducted from short-term gains and long-term gains. Let's say your ETF lost $1000 in the last 364 days. If you have more than $1000 in realized short-term gains (gains from stocks that you have already sold), then you could save $300 in the 30% bracket. If you have no short-term gains but more than $1000 in realized long-term gains, then you could save $150. If you have no realized capital gains, you can deduct $1000 of capital losses from your income, in this case saving you $300. If you lost more than $3000, losses beyond $3000 can't be deducted, but can be carried forward to the next year.

2. If you buy the same ETF back tomorrow, it's called a "wash sale," and the loss cannot be deducted. This is defined in more detail here:
http://www.investopedia.com/articles/04/122704.asp
It may be possible to buy back a different ETF containing similar securities; this is a gray area in the law.
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Old 12-25-2005, 04:30 PM
Ray Zee Ray Zee is offline
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Default Re: Manipulating Taxes with stock market win/losses

you can juggle around some based on your guess of this years income and next years seeing which will be higher and what brackets you will be in. then decide which gains to sell in which year to give the best results. but most times selling or buying for tax advantages isnt worth the trouble as it adds to the costs and may not realize what it looks like. but it does pay to sell out of losers during the year to take some advantages. but when you wait till year end you may find your stock or index already has been sold down some and you are now getting less at this time of the year. some of this falls into what is called the january effect.
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