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Wall Street Week Ahead: "Cliff" worries may drive tax selling ...
How can I put this gracefully? A numerically challenged article?
There's a valid argument to be made for recognizing gain this year - you can do this by selling and immediately repurchasing the same security. The argument is that it is better to pay cap gains taxes now at a lower rate, rather than defer them but pay a higher rate later. It depends on how large the rate difference is (and how certain you are that difference will materialize), and the number of years you expect to hold your investment. Regardless, the argument has merit in certain situations.
But this same argument militates against selling losers. That loss will be worth more to you next year than this year, so it can be better to defer the "gift" from the IRS to later years, when the value of that "gift" is higher.
If you're selling losers to offset gains, you eliminate the same gains this year or next year. So on the amount of gains offset, you pay $0 taxes, whether this year or next year. It's just when you accelerate gains without accelerating losses (or vice versa) that your tactic makes a difference.
Comments
There's a valid argument to be made for recognizing gain this year - you can do this by selling and immediately repurchasing the same security. The argument is that it is better to pay cap gains taxes now at a lower rate, rather than defer them but pay a higher rate later. It depends on how large the rate difference is (and how certain you are that difference will materialize), and the number of years you expect to hold your investment. Regardless, the argument has merit in certain situations.
But this same argument militates against selling losers. That loss will be worth more to you next year than this year, so it can be better to defer the "gift" from the IRS to later years, when the value of that "gift" is higher.
If you're selling losers to offset gains, you eliminate the same gains this year or next year. So on the amount of gains offset, you pay $0 taxes, whether this year or next year. It's just when you accelerate gains without accelerating losses (or vice versa) that your tactic makes a difference.