The current drawdown in the equity markets is staggering, and rivals some of history’s biggest declines, both in speed and severity. Harvesting tax losses is a good way to make lemonade out of lemons and be positioned for the eventual recovery. Tax-loss harvesting is simple: realizing losses in your taxable accounts to accumulate those losses to potentially offset gains and to even get a modest income tax deduction. For example, if you bought AB stock at $37, and it is now $26, you have an $11 loss. Selling the shares realizes the loss and allows you to offset that loss against other present or future realized gains and get a potential deduction on your income. You can replace the sold security with another security as long as you follow the ‘wash-sale’ rules, described in this piece. The end result of a successful harvest is you get the deduction on the losses and still can ride the replacement security back up in a recovery.
View Leon LaBrecque's Forbes contributor profile and other blog posts here: https://www.forbes.com/sites/leonlabrecque/
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Image is Getty from original post on Forbes.com.