You have until December 31–which effectively means Friday December 29 (although I wouldn’t push the deadline, personally) to sell your losers this year to off set any gains from winners you sold during the year.
Given the way the year has unfolded, harvesting your tax losses to offset gains could be especially valuable this year. While the market as a whole is up solidly in 2023, some sectors and individual stocks have been punished, so you my well have losing positions to sell. And since we’ve had multiple buy/sell/buy/sell market trends this year, it’s likely that you took profits in some stocks during the year or sold a winner when the market looked like it was turning sour. In which case you have taxable gains that you can offset by selling losing positions now.
Those words, “taxable gains” are particularly important. You won’t get a loss to offset a gain inside a tax-deferred account like an IRA, a 529 college savings plan, or a 401(k). It applies only to investments held in taxable accounts.
Harvesting tax losses also isn’t as valuable if you’re in a low tax bracket. Tax-loss harvesting lowers your tax bill today; it’s most beneficial for people who are currently in the higher tax brackets.
It’s also most useful as a strategy to implement if you’ve invested in individual stocks, actively managed funds and/or exchange-traded funds. It’s difficult to apply tax-loss harvesting to index funds.
And remember that when you file your taxes, you’ll need to separate long-term gains (for stocks held for longer can a year) from short-term capital gains, where gains are taxed as ordinary income.)
I don’t advocate selling a stock that you like for the long run simply to realize a tax loss. But do remember that you can rebuy anything you sell now if you follow the wash sale rules.
A wash sale is a transaction in which an investor sells or trades a security at a loss and purchases “a substantially similar one” 30 days before or 30 days after the sale.
So if you’re going to rebuy in 2024 something you sell in 2023, make sure you wait longer than 30 days so you can keep that tax loss credit.
