It’s been a good year for the stock market overall, but if you’re like most investors, you still have some losers lurking in your portfolio. Selling those investments could sop up investment gains and lock in some tax-free profits.
If you hold an asset for at least a year and a day and sell it at a profit, it's a long-term capital gain. For most investors, long-term capital gains are taxed at 15%, but high-income investors may pay up to 23.8%. (If you're in the 10% or 15% income-tax bracket, you'll pay zero tax on your 2013 capital gains.). Sell that same asset at a loss and it's a long-term capital loss, which can offset capital gains dollar for dollar. So review your portfolio for dogs you might want to dump and winners you might want to cash in before year-end.
If you sell some assets at a loss, you first must use your capital losses to offset capital gains, if any. After that, you can use up to $3,000 of excess losses to offset other kinds of income, such as your salary or IRA distributions.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Ironically, that means excess losses are extra valuable. Instead of offsetting long-term gains that would be taxed at a maximum 23.8% this year, for example, they can offset income in your top tax bracket -- as high as 39.6%. Excess losses can be carried over to the following year. (Don't forget to check last year's tax return to see whether you reported excess losses that can be carried forward to 2013.)
One word of caution: This strategy applies only to your taxable investment accounts, not your tax-deferred retirement accounts, such as IRAs and 401(k) plans.
-
Stocks Struggle Ahead of November Jobs Report: Stock Market TodayOracle and Broadcom continued to fall, while market participants looked ahead to Tuesday's jobs report.
-
7 Dr. Seuss Quotes Retirees Should Live ByYou're off to great places! Why Dr. Seuss is the retirement guru you didn't know you needed.
-
Fed's Rate Cuts Could Have Impacts You Might Not AnticipateUnderstanding how lower interest rates could impact your wallet can help you determine the right financial moves to make.
-
5 Types of Gifts the IRS Won’t Tax: Even If They’re BigGift Tax Several categories of gifts don’t count toward annual gift tax limits. Here's what you need to know.
-
The 'Scrooge' Strategy: How to Turn Your Old Junk Into a Tax DeductionTax Deductions We break down the IRS rules for non-cash charitable contributions. Plus, here's a handy checklist before you donate to charity this year.
-
Are You Middle-Class? Here's the Most Tax-Friendly State for Your FamilyTax Tips We found the state with no income tax, low property tax bills and exemptions on groceries and medicine.
-
Social Security Benefits Quiz : Do You Know the IRS Tax Rules?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
-
How Are I Bonds Taxed? 8 Common Situations to KnowBonds Series I U.S. savings bonds are a popular investment, but the federal income tax consequences are anything but straightforward.
-
Capital Gains Tax Quiz: How Well Do You Really Know IRS Investment Tax Rules?Quiz Take our capital gains tax quiz to test your investment taxes knowledge. Learn about loss rules, holding periods, and tax incentives that could impact your savings.
-
6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)Retirement Taxes Here’s how converting your traditional retirement account to a Roth IRA can boost your nest egg — but avoid these costly scenarios.
-
Could Tax Savings Make a 50-Year Mortgage Worth It?Buying a Home The 50-year mortgage proposal by Trump aims to address the housing affordability crisis with lower monthly mortgage payments. But what does that mean for your taxes?
