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BUSINESS WEDNESDAY, DECEMBER 3,
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nbsp; TRIBUNE
Is it time to harvest tax benefits from investment losses=
?
REBECCA WARREN is a certified financial planner and certified
senior adviser in
Investment
losses are never pleasant, but you may be able to minimize the pain if you'=
re
able to use them to your advantage at tax time. Though tax considerations
shouldn't be the primary factor in your investing decisions, taking them in=
to
account before December 31 could help your overall situation.
Harvesting
losses involves selling losing positions to avoid being taxed on some or al=
l of
any capital gains realized from selling other securities at a profit. Losses
over and above the amount of any capital gains can be used to offset up to
$3,000 of ordinary income ($1,500 for a married person filing separately) or
carried forward to offset capital gains or ordinary income in future years.=
If
you need to raise cash to meet other obligations, feel you should rebalance
your portfolio or simply want to move to investments you feel have better
prospects in the future than the ones you now hold, harvesting losses can b=
e an
added incentive to take action. And harvesting losses now might prove usefu=
l in
offsetting gains from any market rebound in future years.
If
you have unrealized losses in a specific investment but are reluctant to se=
ll
because you believe it will bounce back eventually, there are a couple of
strategies you could consider. You could double your holdings, then sell your original shares at a loss after 31 days.
You'd end up with the same position, but would have captured the tax loss.
(However, you'll need to be careful not to violate rules prohibiting what's
called a "wash sale:" selling an investment at a loss and then
repurchasing the same, or a substantially identical, investment before 31 d=
ays
have passed.)
You
also could sell a mutual fund at a loss, then pu=
rchase
a different mutual fund or even an exchange-traded fund that invests in the
same asset class, though again, you must take the wash sale rule into accou=
nt.
(Note: Before investing in a mutual fund, carefully consider its investment
objectives, risks, expenses and fees, which can be found in the prospectus
available from the fund. Read the prospectus carefully before investing.) A=
lso,
since you’ll be buying a mutual fund in a taxable account, find out w=
hen
it will distribute any dividends or capital gains. Consider delaying your
purchase until after that date, which often is near year-end.
Don't hesitate to get expert help if you think you might benefit from
harvesting losses for tax purposes.
And don’t forget to ask your tax or financial planner about ot=
her
year-end tax planning strategies that may benefit you as well.
REBECCA
WARREN
FOR THE TRIBUNE