Tending Your Investment Strategy with Tax Loss Harvesting

Let’s start with the basics… 

What are short term capital gains? 

Short term capital gains are assets that you hold and sell for less than a year, granting you a short term gain. These gains are then taxed at a higher rate, which leads to losing money that you could be pocketing through keeping that stock for a longer period of time. 

In order to find the most ideal time to liquidate underperforming assets, there are a couple things to keep in mind. 

  1. Are you selling with the purpose of harvesting tax losses? 
  2. Are you selling short term losses to offset short term gain? 

Based on these two factors, you are now in a position to make a more informed decision about selling these assets. 

One thing to keep in mind is pairing these losses based on the category they are both placed in. This means short term losses should only be used to offset short term gain while long term losses can be offset by long term gain. 

Now, let’s say you have a mutual fund or an ETF that you have received gains on during the year, and now you want to sell some things at a loss position. What happens if you sell and the market goes up again? 

If you are worried about the market going up again, it is important to check in with yourself and ask the question of, am I selling this for tax loss or for my investment strategy? 

The rule of thumb is to make sure you are following the investment strategy as you can receive better results when focusing on your gains rather than your losses. 

This is the same case for stocks. You can’t sell and rebuy the same stock, so you may have to wait 30 days if you really want that stock back in your portfolio. To do so, you have to avoid what is called a wash sale. 

A wash sale occurs when an investor closes out a position at a loss and buys the same security or a substantially similar one within the 61-day wash sale period. 

This is why the wash-sale rule prevents taxpayers from deducting an inappropriate capital loss from taxable gains. 

To learn more about capital gains, tax loss harvesting and harnessing your investment strategy, listen to episode #115 of the Life Unlimited podcast: https://hellerwealthmanagement.com/tending-your-investment-strategy-with-tax-loss-harvesting-ep-115/