As the end of 2024 nears, investors may want to consider how they can use tax-loss selling to their benefit.
Buying stocks low and selling them high is ideal, but sometimes investments go sour. In such cases, all hope is not lost — at the end of the year, investors can sell investments that provided losses instead of capital gains.
The money made from selling off losses can then be used to offset capital gains liabilities incurred for the year. This is the principle behind tax-loss selling, also known as tax-loss harvesting.
This valuable strategy offers investors another opportunity to lower their tax bill for 2025. So let’s take a look at how tax-loss selling works, plus the final tax-loss selling dates for investors in Canada, the US and Australia.
How does tax-loss selling work?
Tax-loss selling is the process of selling stocks at a loss to reduce the capital gains earned on an investment. Since capital losses are tax deductible, they can be used to offset capital gains and reduce tax liability on an investor’s tax return.
Tax-loss selling generally involves investments related to huge losses, and because of this, these sales generally focus on a relatively small number of securities within the public markets. However, it’s important to be aware that if a large number of sellers were to execute a sell order in tandem, the price of the securities would fall.
It’s also worth noting that once selling season has ended, shares that have become largely oversold can bounce back. In addition, the fact that tax-loss selling often occurs in November and December means the most attractive securities for tax-loss selling are investments that are likely to generate strong capital gains early in the next year.
As a result, a potentially beneficial strategy would be to buy during the selling season and sell after the tax loss has been established. This approach could be used on either long-term capital gains or short-term capital gains.
Some investors may consider selling an asset at a loss, deducting that loss for a tax gain and then purchasing the same stock again in an effort to evade taxes. This is known as a wash sale, and is prohibited by the Internal Revenue Service (IRS); if the IRS deems a transaction to be a wash, the investor would not be allowed any tax benefits.
To avoid this situation, investors must wait 30 days to repurchase shares that were originally sold for a loss. Additionally, shares sold for a loss must have been in the investor’s possession for over 30 days.
What are the important tax-loss selling dates for 2024?
Tax-loss selling comes with many potential benefits, but it nevertheless has some strings attached.
The key thing for investors to remember is that it has deadlines. For investors filing their taxes in Canada, the last day for tax-loss selling in 2024 is December 30. Transactions for stocks…
Read More: Mark These Tax-loss Selling Dates on Your Calendar (Updated 2024)