Nobody likes selling a loser, but sometimes there can be a silver lining. Tax loss harvesting allows an investor to reduce their tax liability by selling selected stocks that have lost value. And, everybody appreciates not having to pay more in taxes. As such, here are some tax loss harvesting tips:

tax loss harvesting works best in taxable accounts
remember, investment losses are first used to offset capital gains of the same type (e.g., short term losses offset short term gains)
net losses of either type (short or long term capital gains) can be used to offset the other
additionally, overall net capital losses can be used to offset up to $3,000 of ordinary income (and any excess net capital losses can also be carried forward for future tax years)
determine whether first-in-first-out (FIFO) or choosing specific shares will allow you to pick shares with the highest cost basis
if tax loss harvesting, don’t buy a “substantially identical” security within 30 days of your tax loss sale (i.e., be aware of the wash sale rule) as this may prevent your ability to take a tax loss on the sale

As always, before conducting any tax loss harvesting activity, it is best to consult with a tax professional. Click on the title above for more information.