2015 has been a volatile year for the stock market. With big dips in the spring and fall you have ridden the roller coaster of investing.
One area taking a huge hit this year was oil and gas. The energy sector was down more than 40% over 2014. Perhaps you have a few energy stocks that show losses - the current value is less than what you paid for them. Or maybe, a "hot tip" from a friend did not pan out well.
This would be the time to review your portfolio and sell any losers. You may write these losses off against any capital gains you've made during 2015, dollar for dollar.
For example - you bought an oil company stock three years back and now it's worth half that amount giving you a $5,000 loss.
Earlier this year you had a winner; you sold a bank stock that doubled going from $5,000 to $10,000 giving you a $5000 capital gain. If you sell the losing oil stock and capture the $5,000 loss you may offset the $5,000 capital gain with the $5,000 capital loss and owe no taxes on the capital gain.
Tax-loss harvesting is a strategy that enables investors to save on their tax return by selling losing securities and using the capital loss to offset their gains. You may take advantage of this strategy in your year-end tax planning.
BUT if you want to buy another oil company stock to replace the one you sold, you should not buy a stock that is "substantially identical” to the one you have sold. The IRS considers this a "wash sale" and will disallow the tax loss. You must replace that oil company stock with an energy company that is substantially different.
Say you realized no capital gains this year, then you may take $3000 of the capital loss against $3,000 of ordinary income. The remaining $2,000 may be carried forward and used against 2016 taxes.
Please call your tax adviser to determine if this strategy is right for you!
Be $ Smart - review your portfolio; sell losing stocks and reduce your taxable income.