capital loss

Tax Loss Harvesting for Regular Investors

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tax loss harvesting at finance gourmet

Every so often, tax loss harvesting seems to show up in various marketing literature like it was just invented. The funny part is that tax loss harvesting has been around for a long time. In fact, it’s less important today than it was before Bush the Second cut long-term capital gains tax rates to 15 percent. So, what is tax loss harvesting, and how is it important to the average investor? Understanding Tax-Loss Harvesting and Capital Gains To understand tax loss harvesting, you first have to understand capital gains taxes. Income taxes apply to most forms of income. However, the profits made from the sale of certain types of investments — for our purposes, stocks, bonds, and other equities — are taxed differently. These taxes are known as capital gains taxes. The easiest way to understand it is by example. Capital Gains Example If you buy $10,000 worth of Apple stock and then sell it a few years later for $20,000, then you have made a $10,000 profit. This profit is a form of income known as capital gains. The original investment amount, or purchase price, is known as the basis. The basis may be adjusted depending on several factors, but …

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Capital Loss Tax Deduction

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capital loss tax deduction schedule d

When you sell certain assets or investments that have appreciated in value, you may owe taxes on the increased value. The difference between what you paid for the investment and the amount you sold the investment is a capital gain and it is subject to capital gains taxes. However, if you lose money on an investment, you can deduct the capital loss. Capital Loss Deduction When it comes to taxes, the more tax deductions the better. And, when you lose money on an investment, a tax deduction can take out a little of the sting. However, deducting capital losses can be tricky. Get the rules straight to save on taxes and avoid making mistakes taking your investment loss tax deduction. Just like with capital gains, there are two kinds of capital losses, short-term capital loss and long-term capital loss. Generally, a long-term capital loss occurs when you have a loss on an investment that you have held for at least one year. Conversely, a short-term capital loss occurs when there is a loss on an investment held for less than a full year. The tax deduction for capital losses is limited to $3,000 per year against your regular income. That …

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Reporting Short Sales for Income Taxes

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Reporting most investment income is pretty straightforward. Calculate the gain or loss and enter it on Schedule D. The only trick is whether to report as a long-term or short-term capital gains or capital losses. With short sales, however, there are a couple of tax tricks to know about how they get reported. Long-Term or Short-Term Short Sales The most important thing to understand about short sales, is that they are almost always considered short-term capital gains or losses. Unlike a traditional investment where you buy and hold the property, with a short sell, you do not own the property at all. You borrow the shares from your brokerage who gives you the proceeds of the sale. You close the sale by buying back the same shares you sold. It may seem like you determine whether a short sale is long or short-term by the amount of time that passes in between when the short sale is initiated and when it is closed. However, this is not the case. In order to be a long-term capital gain, you have to OWN the property in question for more than one year. With a short sale, you never own the property. Or, …

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