Tax Loss Harvesting
If you have a taxable investment account, chances are that you have incurred some loss this year. If you itemize your taxes, you can sell stocks at a loss and write off up to $3000 for the current year. You can also carry additional loss forward into following years.
I am not advising anyone to get out of the market right now. I am advising that you sell a mutual fund or stock and then buy something else with it. A good way to do this is if you are near time to rebalance from one asset class to another, now might be a good time to do it.
The only thing you have to be careful about is that you do not buy a similar equity to the one you sold for a loss within 30 days. This is called a wash sale and it is not allowed if you declare the loss in your taxes. (You are certainly free to do a wash sale as long as you do not try to deduct any loss on your taxes.)
There is a good thread on the Boglehead forums called, Mother of All Tax Loss Harvesting Threads. The first post in the thread has links to the IRS pages about wash sales for stocks and mutual funds. They also have a good Wiki entry that is a must read if you are planning to deduct equity losses.
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Year End Tax Advice:
[...] previously wrote about selling equities at a loss in our taxable brokerage account this year to reduce our taxable [...]
18 December 2008, 4:23 am