It’s that time of year again. Yes, the holidays are upon us and it’s time to start running all over the place shopping and visiting family. However, here at Kuntz Lesher Capital, “that time of year again” means something else for us – Tax Loss Harvesting.
Towards year-end, investors have a pretty good idea regarding what their realized capital gains picture looks like for the year. These capital gains arise from selling investments that were winners. Well, Uncle Sam catches word of your success as an investor and before you know it he’s at your doorstep standing there with his hand out. That pesky Uncle Sam always seems to show up whenever you make money. So how can you keep more out of his hands and more in your pocket? Tax Loss Harvesting could be the answer.
This technique involves identifying investments in your portfolio that, for whatever reason, have not performed well and are currently at a loss. You can sell these investments realizing their capital loss which goes towards offsetting any realized capital gains you have dollar-for-dollar. The nice thing about realizing capital losses is that you can carry them forward until your death to use in offsetting future realized capital gains. If we find ourselves in an increasing tax rate environment in the future, it makes capital losses realized today even more valuable. Some other important points:
- Short-term capital gains must first be offset with short-term capital losses
- Long-term capital gains are offset by long-term capital losses and unused short-term capital losses
- Capital losses can be credited (used) against ordinary income up to a maximum $3,000 per year
- If you die before using up all your loss-carry forwards, you lose them
- Wash Sale Rule – be careful! This occurs when you buy back a stock within 30 days from when you sold at a loss and use that loss to offset capital gains come tax time. The IRS frowns upon this one. If you really want to buy that stock back and don’t want to sit in cash for 30 days, you can perhaps just wait out those 30 days by buying an Exchange Traded Fund that tracks the stock market.
Now is the right time to talk to your investment advisor on whether Tax Loss Harvesting would work for you. Kuntz Lesher Capital, a Lancaster, PA-based investment advisory firm, is here to help. Visit our website or call us at (717) 399-1700. Be safe these Holidays, and happy harvesting.
Contributed by Christopher C. Ginder, CFA, vice president/portfolio manager of Kuntz Lesher Capital, a wholly-owned subsidiary of RKL. Chris analyzes and manages a broad range of client portfolios and is responsible for investment strategy for client portfolios.