If you’re planning on selling one of your losing stocks to take a loss and repurchasing it at a later date, be aware of the so-called wash-sale rule.
The wash-sale rule takes effect when you sell an investment at a loss and then buy a substantially similar investment either 30 days before or after that sale. In this case, the IRS won’t allow you to take the loss on your taxes.
Be aware that while you may be selling the losers in your taxable accounts, you can run awry of the wash-sale rule if you buy or sell a similar investment in your 401(k) or IRA as well.
“You’d have to look at all of your accounts to see if you’ve run afoul of this rule,” said Wainscoat.
Further, just because you have losers to sell, that doesn’t mean you should. Work with your accountant or your financial planner to ensure that your tax-loss harvesting plan doesn’t run counter to your long-term goals.
“Think about it, you really don’t want to have losses in your portfolio,” said Tim Steffen, CPA and director of advanced planning at Robert W. Baird & Co.
“If you have a portfolio that’s nothing but gains, it’s a good problem to have,” he said.