?? Understanding Capital Gains / Losses, Realized vs Unrealized, & Short vs Long Term

If you have some hot stocks or some dips in your investments recently here’s a quick reminder on Capital Gains and Losses.?

An investment is unrealized if you haven't sold it, and become realized once you do. Capital Gains / Losses occur when you sell an asset for more or less than you paid for it.

While I can highlight potential tax benefits associated with certain investments, please consult with a qualified tax advisor to fully understand how these benefits may apply to your specific situation.?

Here’s a quick breakdown to help understand them better:

Realized vs. Unrealized Capital Gains / Losses

Realized Gains/Losses:

• Occur when you sell an asset.
• The gain or loss is the difference between the selling price and the purchase price.

Unrealized Gains/Losses:

• Reflect the increase or decrease in the value of an asset that you still own.
• Also known as "paper gains/losses" since they aren't locked in until the asset is sold.

Short Term vs. Long Term Capital Gains / Losses:

Short Term Capital Gains/Losses:

• Result from the sale of an asset held for one year or less.
• Taxed at your ordinary income tax rate, which can be higher.

Long Term Capital Gains/Losses:

• Result from the sale of an asset held for more than one year.
• Taxed at a lower, favorable rate (0%, 15%, or 20% depending on your income).

Strategies for Managing Capital Gains

Tax-Loss Harvesting:

• Sell losing investments to offset gains from winning investments, reducing your overall tax liability.

Asset Allocation:

• Diversify your investments to balance risk and reward across short and long-term gains.
• Place high-growth investments in tax-advantaged accounts and income-generating assets in taxable accounts.

Holding Period:

• Aim to hold investments for over a year to benefit from lower long-term capital gains tax rates.

Reinvestment:

• Consider reinvesting your gains in tax-advantaged accounts like IRAs or 401(k)s to defer taxes.

Qualified Opportunity Zones:?

• If you are an accredited investor, consider investing in these zones to defer or potentially exclude capital gains tax.

Strategies for Managing Capital Losses

?Offset Capital Gains:

• Capital losses first offset gains of the same type.
• Short-Term Losses offset short-term gains; Long-Term Losses offset long-term gains.

Offsetting Other Gains:

• If losses exceed gains of the same type, they can offset the other type (e.g., long-term losses can offset short-term gains and vice versa).

Deduct Against Ordinary Income:

• Any excess losses (up to $3,000 per year or $1,500 if married filing separately) can be deducted from your ordinary income, reducing your taxable income.

Carry Forward Losses:

• Unused losses can be carried forward to future years, applied to capital gains, and then up to $3,000 against ordinary income until fully used.

Effective planning and strategy can help you maximize your investments and minimize your tax liability. Stay informed and consult with a financial advisor or CPA to navigate capital gains efficiently!

This content is for educational purposes only and should not be seen as investment advice. The views expressed do not reflect those of Wealthhouse Advisors. Nothing here constitutes an offer to buy or sell securities. We aim to provide insights without any obligation to invest with us. For more information, contact me at [email protected] or visit wealthhouseadvisors.com.

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