Maximize Your Tax Savings: Harnessing Tax Loss Harvesting for Smarter Investments

Many investors have unrecognized tax losses in their portfolios. Unrecognized losses occur when a security held in a portfolio has declined in value and has not been sold. Those losses are recognized for tax purposes (i.e., made deductible) when the security is sold. Still, there are rules in the Internal Revenue Code that limit the deduction of those losses. Those rules provide for the deferral of loss recognition while at the same time accelerating gain recognition.

For example, one rule allows only a $3,000 net capital loss deduction per year to offset ordinary income, such as income from wages or self-employment. There is also a “wash sale” rule that disallows the deduction of capital losses from the sale of a security if you buy a substantially identical security within 30 calendar days before or after the sale. These rules put up roadblocks for deducting capital losses, but the roadblocks can be avoided by the strategy of tax loss harvesting.

The simple strategy is to sell securities with enough capital gains to directly offset capital losses.... read the complete blog on our website.

This article first appeared on Fulcrum Wealth Advisor's blog at Tax Loss Harvesting: Maximize Tax Savings on Your Investments