If you are interested in how to make lemonade out of lemons, consider talking to your financial planner at A&I about tax harvesting. In many cases, you can offset your gains and save taxes. Importantly, if you have even more losses than taxable gains, you could offset up to $3,000 of income from any source this year.
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Short-term capital gains are created by investments held less than 365 days. You can offset STCG with short-term losses. They are taxed at your income tax rate.
Long-term capital gains are created by investments held more than 365 days. You can offset LTCG with long-term losses or short term losses. They are taxed at the long-term capital gain tax rate.
Dividends are paid by companies and are taxed at your income tax rate. Dividends cannot be offset by either short-term or long-term capital losses, except as described below.
Qualified dividends are paid by mutual funds and are taxed as long-term capital gains. You cannot offset qualified dividends by either long-term or short-term capital losses, except as described next.
There is an important exception to the loss rules. You can use up to $3,000 of losses to offset income from any source. Losses in excess of that number are carried forward to be used in the future.
For example, if you have $100,000 in gains and $115,000 in losses, then you would pay zero taxes on the gains, as long as the gains line up as either short-term or long-term. You would use $3,000 of losses to offset income from any source–including IRA income, earned income, passive income from real estate, Roth Conversion income, you name it! You would carry forward the $12,000 of losses for future years. You could use the $12k to offset investment income, or if you have none, then up to $3,000 could be used every year to reduce your taxable income.
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