using short-term losses to offset long-term gains?

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Double Dog
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Joined: Wed Jan 22, 2020 1:45 pm

using short-term losses to offset long-term gains?

Post by Double Dog »

I suddenly find myself with about $100K unrealized short-term losses. Would it be reasonable to tax loss harvest, and use the short-term loss to offset some other long-term gains? I don't have any short-term gains I can offset, and don't expect to have any later.

Using short-term losses to offset long-term gains is typically seen as a poor idea, because long-term gains are taxed at a lower rate. But in this instance I think it could make sense.
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anon_investor
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Joined: Mon Jun 03, 2019 1:43 pm

Re: using short-term losses to offset long-term gains?

Post by anon_investor »

Sure why not? It's early enough in the year that you might end up having short term gains you might want to offset as well.
jdilla1107
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Re: using short-term losses to offset long-term gains?

Post by jdilla1107 »

I would just keep the losses and take $3k a year income tax deduction. If you really need to take gains at a future date, then do that. But, there is no reason to realize gains just to offset losses. (The losses can be kept into the future.)
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House Blend
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Re: using short-term losses to offset long-term gains?

Post by House Blend »

Double Dog wrote: Sat Feb 29, 2020 5:12 pm I suddenly find myself with about $100K unrealized short-term losses. Would it be reasonable to tax loss harvest, and use the short-term loss to offset some other long-term gains?
Yes. What's going to happen if you do nothing:

a) your short term losses become long term losses, or
b) your short term losses become gains,

and you pay tax on your existing long term gains.

There are very few reasons for a Boglehead to ever realize a short term capital gain. And note that if a fund distributes a short term gain, it is taxed as if it were a dividend, and cannot be cancelled by capital losses.

On the other hand, given that you are willing to tax loss harvest, there are very few reasons not to harvest both LT and ST losses whenever they are big enough to be worth taking.

And note that it is impossible to have "too much" in carryover losses. The worst that can happen is that you will deduct $3K against ordinary income and not pay any capital gains tax every year for the rest of your life.
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