If you have long-term investment goals sending children to college, planning a comfortable retirement, providing a legacy for the next generation you probably adhere to a long-term investment philosophy, such as buy and hold. But even a buy-and-hold strategy doesnt require you to own a stock forever.
At some point, you may choose to sell a stock because it no longer meets your diversification needs, or because the underlying company has lost its competitive position within its industry. You might also decide to sell because you feel that a companys management has taken the business in a new, questionable direction. And on occasion, you might sell a stock because its price has fallen so far that it may never recover.
Whatever your reason for selling a stock, youll want to get as much benefit from the losses as possible. Fortunately, youve got an ally the U.S. tax code. Your investment losses are tax-deductible, to a point. You can use your capital losses to offset any capital gains you have, plus up to $3,000 of other income, including earned income. So, for example, if you realized a $2,000 capital gain this year from selling stocks or other appreciated investments, you could write off up to $5,000 in losses. And you can carry forward any excess losses to future years.
In fact, because so many investors have realized more losses than they cant write off in a single year, Congress is considering increasing the amount of losses that can be deducted annually.
What happens if youd like to write off some losses, but you still want to hang on to the stock that caused them? If you sell the stock, and then buy it back within 30 days, you cant deduct the losses, because youd be violating the IRS wash-sale rule. You could sell the stock, wait for 30 days, and then repurchase it but youd run the risk of having the stocks price rebound in the meantime. As an alternative, you could sell the stock and immediately reinvest your proceeds in a similar company. As long as youre not investing in a stock that is substantially identical to the one you sold, you can generally avoid the wash-sale rule. Nonetheless, youll want to consult with your tax advisor before making any of these types of moves.
Edward Jones Investments
15010 FM 2100 Suite 101
(Next to Crosby Fairgrounds)
Crosby, TX 77532
Please call for our CD rates. 281-328-9913