5100 Parkcenter Ave Suite 120 Dublin, OH 43017

Can You Turn Investment Losses into Tax Gains?

Can You Turn Investment Losses into Tax Gains? EGSI Financial

When markets take a spill, it’s harder to find ways to meet your financial goals. If you were relying on an IRA or 401(k) to cover your expenses, doing so when markets are down may deplete your savings. If you’re nearing retirement, market losses may provide cause to push back your retirement.

While all these concerns are important, there is a hidden benefit to selling a losing investment. Using tax-loss harvesting, you can reduce your taxes through realizing investment losses.

What is Tax-Loss Harvesting?

This strategy is when you sell stocks, mutual funds, exchange-traded funds (ETFs), and other investments at a loss to offset gains from other investments. Essentially, you can sell investments at a loss to cancel out any you may have sold at a gain or even on personal income.  It’s crucial to know that tax-loss harvesting only defers your capital gains taxes; it does not eliminate them. In addition, if an investor has no capital gains to offset, the loss can be carried over to future gains or future income taxes – there is no expiration date.[1]

When is the Right Time for Tax-Loss Harvesting?

This strategy is beneficial if you have a year in which your income or investment gains are abnormally high. Usually, around the time you retire, you will be adjusting to cover your expenses from savings rather than income. Doing so can create large, realized investment gains or abnormal personal income amounts on your tax returns. If this may be the case for you, tax-loss harvesting may help you save on taxes.

When it comes to tax-loss harvesting, timing is key. Knowing which tax years to make your asset adjustments is crucial to offset losses; but be sure to know other rules that may come with this strategy. The Wash-Sale rule prohibits you from claiming investment losses if you reinvest your assets within 30 days of selling.[2]

Key Takeaway

Advocates of this strategy say that tax-loss harvesting is a shrewd way to turn a negative into a positive, and can be a useful part of your overall financial planning strategy if the situation calls for it. Just remember that executing such a strategy is not easy to do on your own

No matter what your financial concerns are, you can sign up with us for a review of your finances to help you get a step closer to your financial goals.


1 https://www.investopedia.com/articles/taxes/08/tax-loss-harvesting.asp
2 https://www.investopedia.com/terms/w/washsalerule.asp

Advisory services offered through EGSI Investment Management, Inc., a Registered Investment Advisor with the State of Ohio.  Insurance services offered through EGSI Financial, Inc. Guarantees offered with insurance products are based on the claims-paying ability of the issuing company.  Investing may involve risk and may result in the loss of principal. Ohio Insurance License # 619337. Please contact EGSI Investment Management if there are any changes in your financial situation or investment objectives, or if you wish to impose, add, or modify any reasonable restrictions to the management of your account, EGSI Investment Management Form ADV Part 2A&B is available for your review upon request.

Share the Post:

Related Posts