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Watch out for the wash sale rule

September 24, 2014

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If you’ve cashed in some big gains this year, consider looking for unrealized losses in your portfolio and selling those investments before year end to offset your gains. This can reduce your 2014 tax liability.

But if you want to minimize the impact on your asset allocation, keep in mind the wash sale rule. It prevents you from taking a loss on a security if you buy a substantially identical security (or an option to buy such a security) within 30 days before or after you sell the security that created the loss. You can recognize the loss only when you sell the replacement security.
Fortunately, there are ways to avoid the wash sale rule and still achieve your goals:

  • Immediately buy securities of a different company in the same industry or shares in a mutual fund that holds securities much like the ones you sold.
  • Wait 31 days to repurchase the same security.
  • Before selling the security, purchase additional shares of that security equal to the number you want to sell at a loss; then wait 31 days to sell the original portion.

For more ideas on saving taxes on your investments, please contact us.

© 2014

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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