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I have 17k carry forward loss coming from last year. This year i have chevron CVX stock where i am making about 10k in positive. I am thinking of selling my CVX stock to cover 10k from my last years' loss. i am also thinking of buying CVX stock again the next day after selling it.

My question is, 

1 - By selling my CVX stock, Can i cover the 10k from my last year's carry forward loss(17k) and don't pay any tax this year on the 10k profit ? so after this only 7k will be carried forward to next year.

2 - If i buy the CVX again the next day after selling it, Will it have any impact on what i am trying to achieve above ?.... i mean wash sale only applies on the loss if we buy the same stock within 30 days but in my case, i am selling a stock with profit and buying it again the next day.

What you guys think ? please help ....i am not a expert in this area.

 

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Since you describe the aunt as dying penniless, perhaps someone else was paying her expenses. If the payor held stock wi... (more)

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You hit the nail on the head.  My mother was paying whatever expenses weren't covered by my aunt's social security.  Gif... (more)

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rated:
Yup - no tax on 10k. Plus you can still write off another 3k - so only 4k carried forward.

you dont even have to wait for the next day - you can do it on the same day 5 mins later. Wash sale rule only applies to losses - irs is happy to see you take gains. 

The last interesting wrinkle is that if you have short term loss, don't want to wipe that with long term gain or convert what could be long term gain by selling to early just to wipe out the loss. Do you keep mutual funds? wipe the loss with mutual fund distributions.
 

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I sold a profitable stock and bought it back 30 seconds later in that order. Fidelity reports the gain on my closed transactions (gain/loss summary) and lists my repurchase as of the new transaction. Like you I am NOT an expert in that area, but we are functioning on the same thinking.
Just be sure your sale takes place before entering the purchase order.

rated:
Thanks alot for the reply and hint on the short term/long term thing....i don't have any mutual funds. I am just playing with my taxable account.

one more thing i forgot to mention, i have another stock SUNEQ (they went bankrupt) so i lost 2k in it...since SUNEQ is a energy sector stock like CVX, if i sell SUNEQ this year, i should not be buying any other energy stock for next 30 days to prevent wash sale.....so to handle this and achieve what i mentioned above, i should first sell CVX and buy it again and then sell SUNEQ and don't buy any energy sector for 30 days.... am i correct here with my strategy?

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mk1039 said:   one more thing i forgot to mention, i have another stock SUNEQ (they went bankrupt) so i lost 2k in it...since SUNEQ is a energy sector stock like CVX, if i sell SUNEQ this year, i should not be buying any other energy stock for next 30 days to prevent wash sale.....
  Sorry about SUNEQ, but at least you decided to sell it before it is / will be totally worthless - don't wait on that.  In answer to your question, wash sales basically only apply to trades within a given stock (possibly including options on it), so whatever you do with SUNEQ will have nothing at all to do with CVX.  If you sold SUNEQ at a loss and then rebought it, then you'd have to worry about a potential wash sale.

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Hmmm ... that does muddy the water. Talk to your broker. In that case, I would be tempted to wait at least three business days after the sale/repurchase of the profitable stock before selling the new capital loss stock. The more time after the sale/repurchase ... the better.

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JW10 said:   Just be sure your sale takes place before entering the purchase order.

Not necessary. You can pick the lot that you want to sell.

JW10 said:   In that case, I would be tempted to wait at least three business days after the sale/repurchase of the profitable stock before selling the new capital loss stock. The more time after the sale/repurchase ... the better.

Like xerty said, SUNEQ has nothing to do with CVX.

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PrincipalMember said:   The last interesting wrinkle is that if you have short term loss, don't want to wipe that with long term gain or convert what could be long term gain by selling to early just to wipe out the loss.

mk1039, you should fully understand this before selling CVX.

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mk1039 said:   I have 17k carry forward loss coming from last year. This year i have chevron CVX stock where i am making about 10k in positive. I am thinking of selling my CVX stock to cover 10k from my last years' loss. i am also thinking of buying CVX stock again the next day after selling it.
 

What benefit do you get from doing this?  I know about tax loss harvesting, but this is kinda the opposite; you're trying to pay taxes earlier rather than defer them?  The loss carryover could instead be used against $3k of income (which would be taxed at a higher rate than capital gains) each year.  Or maybe you'll have short term gains in later years.
Is it just that you think tax rates will be higher later?  Or you think the tax law allowing loss carry forward will be changed?

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govenar said:   
mk1039 said:   I have 17k carry forward loss coming from last year. This year i have chevron CVX stock where i am making about 10k in positive. I am thinking of selling my CVX stock to cover 10k from my last years' loss. i am also thinking of buying CVX stock again the next day after selling it.
What benefit do you get from doing this?  I know about tax loss harvesting, but this is kinda the opposite; you're trying to pay taxes earlier rather than defer them?  The loss carryover could instead be used against $3k of income (which would be taxed at a higher rate than capital gains) each year.  Or maybe you'll have short term gains in later years.
Is it just that you think tax rates will be higher later?  Or you think the tax law allowing loss carry forward will be changed?

  
Really good point. Seems like nothing is gained except a phony peace of mind that the capital loss has been wiped out. I cash out my profit mostly for option trades where if I close before the end of the year, I throw them in the pile of this year's taxes versus next year's taxes.

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Depending on your state, your 10K can be taxable..

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PrincipalMember said:   Yup - no tax on 10k. Plus you can still write off another 3k - so only 4k carried forward.

you dont even have to wait for the next day - you can do it on the same day 5 mins later. Wash sale rule only applies to losses - irs is happy to see you take gains. 

The last interesting wrinkle is that if you have short term loss, don't want to wipe that with long term gain or convert what could be long term gain by selling to early just to wipe out the loss. Do you keep mutual funds? wipe the loss with mutual fund distributions.


@PrincipalMember,

Would you mind explaining a little more? Also appreciate any links..

Consider a scenario:  Assuming income is 100,000 for both year..
  ST Loss ST Profit LT Loss LT Profit
2015 10,000   12,000  
2016   15,000   3,000

ST loss carryover == 10,000
LT loss carryover ==  12,000

So, for 2016 taxes:
ST profit ==  5,000
LT profit  == (9,000) Carryover for 2017

From I was told by my tax adviser (HRblock), any carryover losses are used in chunks of $3,000/year (ST carryovers reduce current year ST profits, LT carryovers reduce current year LT profits). I am/was ignorant. I should do more reading then!
Thanks!



 

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The 3k/year limit is for overage applied to regular income taxes. There is no limit on using up the carryover against capital gains

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Bend3r said:   The 3k/year limit is for overage applied to regular income taxes. There is no limit on using up the carryover against capital gains
  
Wow! I *was* ignorant. Thanks for the education. I really appreciate it!

Let me ask another question..
  ST Loss ST Profit LT Loss LT Profit
2015 0  NA 20,000 NA
2016 15,000 15,000 8,000 4,000

For 2016 Tax:
ST profit == 0
LT loss ==  -24,000   ==> (-20,000) + (-8,000) + 4000

3,000 can be reduced from income, and hence 21,000 is the LT carryover loss for the next year?

Can the LT carryover losses be used to reduce ST profits? From http://investorjunkie.com/38385/tax-loss-harvesting/ , it appears ST loss can be used against LT profits, and not the other way round? Am I right?

The only way to use up LT carryover losses is to create LT profits?

Thanks guys! I appreciate your time and efforts!
 

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srns said:   
Can the LT carryover losses be used to reduce ST profits? From http://investorjunkie.com/38385/tax-loss-harvesting/ , it appears ST loss can be used against LT profits, and not the other way round? Am I right?

The only way to use up LT carryover losses is to create LT profits?
 

 No, that's wrong.  Here's the rough procedure:

You net ST gains and losses.
you net LT gains and losses.
if both are positive, you pay on each type separately.

if either one but not the other are a net loss, you combine them to get one net total.
if that total is positive, you pay on the type that was bigger.
if that total is negative, you take up to $3k against income and carry forward the rest.
i forget which type the $3k comes off of if both are losses.

rated:
xerty said:   
srns said:   
Can the LT carryover losses be used to reduce ST profits? From http://investorjunkie.com/38385/tax-loss-harvesting/ , it appears ST loss can be used against LT profits, and not the other way round? Am I right?

The only way to use up LT carryover losses is to create LT profits?

 No, that's wrong.  Here's the rough procedure:

You net ST gains and losses.
you net LT gains and losses.
if both are positive, you pay on each type separately.

if either one but not the other are a net loss, you combine them to get one net total.
if that total is positive, you pay on the type that was bigger.
if that total is negative, you take up to $3k against income and carry forward the rest.
i forget which type the $3k comes off of if both are losses.

   
@xerty -- thanks!

I'm reading up on this to understand tax, profits, losses (accounting in general)! Do you have any links that discuss all the scenarios?

Thanks!


 

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I find IRS.gov pretty helpful for the tax rules.  They have lots of easy to read pages explaining how they work for capital gains / washes /etc.  It's one of those times that the advice to fill out a tax return at least once by hand is appropriate.  The instructions on the forms themselves are pretty straightforward for most things.

You only need to look elsewhere for non-defined grey area stuff (Like trying to figure out what counts as substantially identical for wash sales when dealing with options)

rated:
srns said:   
I'm reading up on this to understand tax, profits, losses (accounting in general)! Do you have any links that discuss all the scenarios?


Use a tax preparation program and plug in some number to see what happens on Schedule D and Form 1040.

rated:
PrincipalMember said:   
govenar said:   
mk1039 said:   I have 17k carry forward loss coming from last year. This year i have chevron CVX stock where i am making about 10k in positive. I am thinking of selling my CVX stock to cover 10k from my last years' loss. i am also thinking of buying CVX stock again the next day after selling it.
What benefit do you get from doing this?  I know about tax loss harvesting, but this is kinda the opposite; you're trying to pay taxes earlier rather than defer them?  The loss carryover could instead be used against $3k of income (which would be taxed at a higher rate than capital gains) each year.  Or maybe you'll have short term gains in later years.
Is it just that you think tax rates will be higher later?  Or you think the tax law allowing loss carry forward will be changed?

  
Really good point. Seems like nothing is gained except a phony peace of mind that the capital loss has been wiped out. I cash out my profit mostly for option trades where if I close before the end of the year, I throw them in the pile of this year's taxes versus next year's taxes.

My mother's 90 year old aunt died about three years ago after having exhausted all her retirement accounts and died penniless.  She had a mid-five figure carryover capital loss from several years prior that died when she did because she never had any significant future gains or income to offset the loss that occurred when she cashed out her last bit of investment money sometime in her 80s.  Lesson here is if you're going to die soon and for some reason your beneficiary isn't going to get a step up in basis upon inheriting from you, use the carryover loss to offset gains on specific positions that have substantially increased in value.  Sell those positions before you die.  If your beneficiary is going to get a step up/down for all positions, it probably won't matter.

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DTASFAB said:   
PrincipalMember said:   
govenar said:   
mk1039 said:   I have 17k carry forward loss coming from last year. This year i have chevron CVX stock where i am making about 10k in positive. I am thinking of selling my CVX stock to cover 10k from my last years' loss. i am also thinking of buying CVX stock again the next day after selling it.
What benefit do you get from doing this?  I know about tax loss harvesting, but this is kinda the opposite; you're trying to pay taxes earlier rather than defer them?  The loss carryover could instead be used against $3k of income (which would be taxed at a higher rate than capital gains) each year.  Or maybe you'll have short term gains in later years.
Is it just that you think tax rates will be higher later?  Or you think the tax law allowing loss carry forward will be changed?

  
Really good point. Seems like nothing is gained except a phony peace of mind that the capital loss has been wiped out. I cash out my profit mostly for option trades where if I close before the end of the year, I throw them in the pile of this year's taxes versus next year's taxes.

My mother's 90 year old aunt died about three years ago after having exhausted all her retirement accounts and died penniless.  She had a mid-five figure carryover capital loss from several years prior that died when she did because she never had any significant future gains or income to offset the loss that occurred when she cashed out her last bit of investment money sometime in her 80s.  Lesson here is if you're going to die soon and for some reason your beneficiary isn't going to get a step up in basis upon inheriting from you, use the carryover loss to offset gains on specific positions that have substantially increased in value.  Sell those positions before you die.  If your beneficiary is going to get a step up/down for all positions, it probably won't matter.

  Since you describe the aunt as dying penniless, perhaps someone else was paying her expenses. If the payor held stock with unrealized capital gains, he/she could have gifted that stock to the aunt and the cost basis would have carried over with the gift. The aunt could have then sold the stock and used up her capital loss carryforward. The benefit would be that the payor to avoid paying capital gains on the stock upon an eventual sale, and the aunt is no worse off, assuming that she otherwise would have died with an unused capital loss. If the payor wished to continue holding the stock, he/she could repurchase it immediately upon gifting, thereby resetting the cost basis. There might be reasons why this type of gifting would not be a good idea -- Medicaid comes to mind, but I don't know enough about it to comment further.

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Fidelity Investments said: To enhance your potential tax savings, you should apply as much of your capital loss as possible to short-term gains, because they are taxed at a higher marginal rate. This is particularly true for high-income investors. For example, if you’re in the top tax bracket, the difference between short- and long-term gains can be as high as 19.6% (43.4% versus 23.8%). However, if you’re in the 25% tax bracket—$75,301 to $151,900 for joint filers and $37,651 to $91,150 for singles—the difference between the short- and long-term gains rate is 10% (25% versus 15%).

According to the tax code, short- and long-term losses must be used first to offset gains of the same type. But if your losses of one type exceed your gains of the same type, then you can apply the excess to the other type. For example, if you were to sell a long-term investment at a $15,000 loss but had only $5,000 in long-term gains for the year, you could apply the $10,000 excess to any short-term gains.

The least effective tax-loss harvesting strategy, on the other hand, would be to apply short-term capital losses to long-term capital gains. But, depending on the circumstances, that may still be preferable to paying the long-term capital gains tax.

Also, keep in mind that realizing a capital loss can be effective even if you didn’t realize capital gains this year. The tax code allows you to apply up to $3,000 a year in capital losses to reduce ordinary income, which is taxed at the same rate as short-term capital gains and nonqualified dividends. If you still have capital losses after applying them first to capital gains and then to ordinary income, you can carry them forward for use in future years until you use them all.


 

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HKnight said:     Since you describe the aunt as dying penniless, perhaps someone else was paying her expenses. If the payor held stock with unrealized capital gains, he/she could have gifted that stock to the aunt and the cost basis would have carried over with the gift. The aunt could have then sold the stock and used up her capital loss carryforward. The benefit would be that the payor to avoid paying capital gains on the stock upon an eventual sale, and the aunt is no worse off, assuming that she otherwise would have died with an unused capital loss. If the payor wished to continue holding the stock, he/she could repurchase it immediately upon gifting, thereby resetting the cost basis. There might be reasons why this type of gifting would not be a good idea -- Medicaid comes to mind, but I don't know enough about it to comment further.
You hit the nail on the head.  My mother was paying whatever expenses weren't covered by my aunt's social security.  Gifting the stock would have completely screwed up her Medicaid eligibility.  Also complicating matters is that the co-op my aunt lived in was owned by each of them 50/50, joint tenancy with rights of survivorship.

But if those circumstances hadn't complicated matters, your gifting idea is a great one.

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