Beware the Dreaded Wash Sale Rule when Harvesting Tax Losses

I am writing to share some important insights regarding tax-loss harvesting, a strategy that can be beneficial for managing your investments and tax obligations.

While tax-loss harvesting is often considered a year-end tactic, it’s also applicable whenever you need to offset gains, especially looking ahead to 2024. The wash-sale rule disallows a loss from selling stock or mutual fund shares if you buy substantially identical securities within a 61-day window surrounding the sale. For example, if you sell shares at a loss and repurchase the same or similar shares too soon, the tax code disallows your loss. The rule aims to prevent investors from claiming a tax loss while maintaining a position in the market. Fortunately, the disallowed loss isn’t lost forever. It’s added to the tax basis of the new securities, reducing future gains or increasing future losses. But navigating this rule requires careful planning. You could use the “double up” strategy to maintain your position in a stock while still harvesting tax losses. Additionally, it’s important to note that the wash-sale rule currently does not apply to cryptocurrency losses, as the IRS classifies cryptocurrencies as property, not securities. This exemption offers a unique opportunity for tax-loss harvesting in the crypto market.

If you want to discuss tax-loss harvesting, please give us a call.