Tax Loss Harvesting: Silver Lining in a Down Market

Nick Levinson Life with Money

With stock and bond prices still down significantly for 2022, one opportunity for a “silver lining” comes in the form of tax loss harvesting. This involves selling investments in taxable accounts that have declined in price, thereby “realizing” losses. (Tax loss harvesting doesn’t apply to retirement accounts like 401Ks and IRAs.) These losses can be used to offset gains from sales of capital assets, including investments and real estate. If the losses exceed the gains for a specific year, you can typically deduct up to $3,000 of ordinary income on your tax return for that year. Any losses beyond the offset of gains and the annual deduction for the current year can be “carried forward” indefinitely. It’s a good idea to check with your tax professional before deciding whether, and if so, how much, tax loss harvesting to pursue in a particular year.
tax loss harvesting
If you decide to do some tax loss sales, Park Piedmont Advisors typically recommends reinvesting the sale proceeds in similar investments to maintain the asset allocations we’ve developed with you. (The “wash sale” rule disallows the loss if you buy back into the same investment you sold within 30 days of the sale.) Depending on the amount of the sale proceeds, it might also make sense to re-invest over time, which we often refer to as “dollar cost averaging.”

Please feel free to contact your Park Piedmont advisor to discuss whether tax loss harvesting makes sense for you.