Don't Be Caught Red-Handed By The Wash Sale Rule
It often makes sense to "harvest" capital losses from securities transactions to offset capital gains. Any losses that exceed your gains can offset up to $3,000 of ordinary income for the year.
But not all investment losses are deductible. Under the "wash sale rule," a capital loss is disallowed if you acquire substantially identical securities within 30 days of the sale. This rule often trips up unwary investors.
When are securities "substantially identical?" The definition is murky, but stocks and bonds of different companies are not substantially similar. However, buying and selling shares of mutual funds within the same family could trigger the rule.
Fortunately, it's relatively easy to avoid making wash sales. You simply can wait more than 30 days to acquire substantially identical securities. Or if you want to pounce now on a particular offering, you could do that and wait more than 30 days to sell the original shares.
Be careful not to get boxed in by the wash sale rule at the end of the year. Allow yourself enough time to sell your shares.
If a loss is denied, at least there's a silver tax lining: The amount of the disallowed loss is added to the basis of the new securities, and that will have the effect of decreasing your taxable gain or increasing your deductible loss on a future sale.
© 2018. All Rights Reserved.
- Bitcoin, Chasing Your Tail, And Investing
- The Big New Tax Break For Pre-Retired Professionals
- Sidestepping New Limits On Charitable Donations
- The Truth About U.S. GDP Growth
- Another Member Of Music Royalty Dies With No Will
- Paying Off A Mortgage And The New Tax Code
- Key Facts On Deducting Medical Expenses
- Reduce Your Widow's Tax Bill Materially Annually
- Ten Things About 10-Year U.S. Stock Market Performance
- Qualifying For The New Business Owner Tax Break
- Your Alma Mater Or Your Family?
- This Is Not Your Parents' Interest Rate Cycle
- If Family Is Wealth, Then Planning Is Immortality
- Life Is Fragile, So, Please, Value Each Day As Priceless
- Everything You've Learned About Interest Rates May Be Wrong