Have You Ever Heard Of Tax Loss Harvesting?

Have you ever heard of Tax Loss Harvesting?

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Tax Loss Harvesting is an investment strategy that could help investors preserve value in their portfolio while reducing the amount of tax on capital gains.

What most people don’t understand is if your capital losses for the year exceed your capital gains, the IRS only allows up to $3000 to be deducted in your net losses from your annual income. The rule does however allow you to carry forward the excess amount into future tax years. 

So how does this strategy work?

👉 Tax-loss harvesting takes advantage of the capital losses and uses those losses to offset capital gains.

👉 This creates a bank if you will of losses from unprofitable investments that can be used in future years if there are losses more than the $3000.

👉 The investor uses the proceeds to purchase other securities that not substantially identical to preserve the balance of the portfolio.  If they buy the same stock or the same mutual fund company within 30 days you will lose the benefit.

Another point to remember is that short-term losses can only be used to offset short-term capital gains and long-term losses can only be used to offset long-term gains. Your financial advisor should be able to help you with this.

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