Tax loss season is here!

[earthtodan]

It's time to start thinking about harvesting tax losses. There's still 2 months to go, which leaves plenty of time for 30 day windows to avoid wash sales (for US based investors).

30 days is important if
a) you want to sell, wait, then rebuy
b) if you want to buy, then sell. You still have to wait 30 days after buying your lower priced shares before selling your higher priced shares. I'm going to employ this strategy so I don't have to relinquish any positions for a month.

I'm using this strategy with SNY. They tanked after posting a worrying earnings report suggesting an insulin price war in the US market, and then ousting the CEO for no good reason, and now I have a big unrealized loss. I still like the company and think it's way cheap, so I bought the dip, and I'll sell my higher priced shares in a month. I'm fully invested now, so I'm actually going to do this on margin.

I went overweight the offshore drilling industry earlier this year before those stocks tanked, so I'm going to be rotating money around in those stocks too. I'm not getting out of them, because selling low and moving on would just be a rookie move. It's safe to say they move as a sector with the price of oil, so I could move money from one to another and not have to wait 30 days. The yields are still great as long as they don't get cut.

Who else is harvesting?

Disclaimer: I am not a tax advisor, and anything I say should be used for entertainment purposes only.

[Kerim]

Good reminder, Dan.

I rarely sell, so don't think too often about this. And usually the stuff I hold is not volatile enough to consider this as a worthwhile strategy.

But the recent ARCP debacle may provide an opportunity. Let me make sure I understand the deal:

Right now I've got a substantial paper loss in ARCP in a taxable account. I think I am inclined to hold, but I can use the loss to my advantage.

Sell now, and book the loss. I don't have any capital gains to offset, because I have not sold anything else. But I can use the loss to offset up to $3000 of earned income. (This is still true, right??)

After 30 days, I can buy back into ARCP without any adverse consequence, if I want.

(Or I can learn my lesson and stick with the well-established blue chips!)

Am I overlooking anything important?

Thanks!

[earthtodan]

That's the idea. I'm fuzzy on the details, such as whether you can offset taxes on dividends received as well, and whether you can roll over unused losses to the next year. So I guess this calls for some Googling.

I only hold REITs in my Roth IRA, but ARCP is a good example if you hold it in a taxable account. You can sell it and wait 30 days (or maybe 31?) and then get back in. Of course you take on the risk of the price moving up in the time you don't own it (or the benefit of it falling further).

In the case of SNY, I think it's oversold and the price could easily move up over the next 30 days, so instead of selling, I actually doubled down. I have to wait the month, because the 30 day rule works in both directions, but after that I can sell the higher priced tax lot and book the loss, thus lowering my cost basis on the position. Of course, your broker has to let you select specific tax lots.

[ChadR]

Any losses over $3,000 (after going against gains) are rolled over to the next year. No limit on how much you can roll over from year to year. I have a client that has close to $300,000 in capital losses that were rolled over to next year. My advice to him was to start making money on stocks or live forever. His choice.