This Tax Loss Selling infographic illustrates the strategy of realizing capital losses in taxable investment accounts by selling investments that have declined in value. The goal is to use those losses to offset any capital gains, potentially reducing the amount of taxes owed. This strategy can help generate tax savings, especially in years with gains elsewhere in the portfolio.

The infographic on tax-loss selling explains the mechanics of the strategy, its benefits, how carry-forward and carry-back rules work, and which types of investments are eligible.

Who should consider tax-loss selling?

• Individuals who are selling investments at a loss but have little or no capital gains to offset in the current year.
• Those who have realized capital gains in the past three years, or whose spouse has, and may benefit from utilizing losses carried forward or carried back.

Superficial Loss Rule

Tax Loss Selling infographic stresses to be mindful of the Superficial Loss Rule, which disallows a capital loss if the investment (or an identical investment) is repurchased within 30 days. If this rule applies, the loss is denied and added to the cost base of the person who bought the security. This rule prevents investors from selling and quickly repurchasing assets to claim a tax loss without truly exiting the position.

Investment Considerations

While tax-loss selling can offer short-term tax savings, it’s important to balance this with your long-term investment strategy. Even if an asset has declined in value, it may still align with your overall financial goals, so it’s essential to evaluate whether selling is in your best interest beyond just the tax implications.

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