This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
However, market conditions change quickly, so to leverage this opportunity most efficiently, there are varying factors to keep in mind when it comes to tax-loss harvesting, some of which include:
📌 Understand your limits: According to the IRS, if capital losses exceed capital gains, up to $3,000 ($1,500 if married and filing separately) can be deducted in a given year. Any leftover losses can then be carried to future tax years until the amount is depleted, dependent on state tax rules.
📌 Beware of the wash-sale rule: This prohibits you from purchasing the same or “substantially identical” investment 30 days before or after selling an investment for a loss. To avoid a complete wash, being aware of what constitutes an identical investment, as well as the timing of your purchase is key.
📌 Think outside the box: Beyond stocks and mutual funds, tax-loss harvesting can be leveraged amongst fixed-income holdings (such as bonds and CDs), especially as we now see the impact rising interest rates have had on these investment vehicles.
📌 Have an interim strategy: If blocked by the wash-sale rule, you can still take a tax-loss harvesting approach by reinvesting cash from a stock sale into other investments, such as index funds.
📌 Ensure the sale makes sense: Saving on taxes is a plus, but sometimes staying put might be the wisest move.
Make note: Now is a great time to look at tax loss harvesting opportunities, but there’s a lot to know. At the end of the day, you have to weigh the value being provided versus the time you may put into such an endeavor.