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Reap Tax Rewards from Year-End Harvesting

Thursday, October 17, 2019

The stock market has experienced plenty of ups and downs this year. So some investors are poised to take big gains for 2019, while others are currently showing losses and many have both.

What are the tax consequences if you sell securities? There’s no fast answer. But it helps if investors understand the basic rules and plan accordingly at year-end. Here’s a brief overview.

Create Net Results

Notably, capital gains and losses from securities transactions are treated as short-term gains or losses if you’ve held the securities for a year or less and long-term if you’ve owned them for more than a year. Gains and losses are “netted” to produce the final results. Thus, you may be inclined to “harvest” (or realize) gains or losses as we head toward the end of the year, depending on your situation.

  • If you’re showing a net gain, you can harvest a loss to offset the gain. In effect, the gain is tax-free. Any excess loss can offset up to $3,000 of highly-taxed ordinary income like wages from your job. Any remainder can be carried over indefinitely.
  • If you’re showing a net loss, you can harvest a gain to offset the loss. In effect, the gain is tax-free up to the amount of the loss. Any excess is taxable under the usual capital gain rules.

As you’ll see below, the differences in tax rates for short-term capital gains and long-term gains may dictate your planning strategies for the rest of the year. READ MORE