Your Money: Tax loss selling

By Matt Solberg on November 26, 2022.

Of course, when investing we hope for gains, but unfortunately it doesn’t also work out that way. 2022 has turned out to be a year investors will want to put behind them, but there could be silver lining by using some losses investors have in their portfolio to reduce taxes. It’s called ‘tax loss selling’ and it brings the opportunity to use losses on investments to recoup or reduce tax paid on capital gains in the past, and/or in the future.

Investments such as stocks, bonds, mutual funds and ETFs can fluctuate in value. If they increase in value from what you paid for them that would be considered a ‘capital gain’ and if they decrease in value, then that would be considered a ‘capital loss’. Tax loss selling permits an investor to sell a security, that is in a loss position and that loss to be applied against capital gains. So, by realizing this loss it could potentially be used to lower or eliminate taxes on capital gains for the current year, be carried back as far as three years, or carried into the future indefinitely.

For example; if you realized $10,000 in losses this year and had accumulated $10,000 in Gains over the past 3 years, you can go back and recoup the taxes paid. Or if perhaps you only had $5,000 in realized Capital Gains over the past 3 years, you could offset those and then carry forward the remainder to be used against Gains in the future.

This is a strategy that your Financial Planner and Accountant should work together on. There are some rules, most notably is something called the ‘superficial loss’ rule, which prohibits the re-purchase, in any account, registered or non-registered, in the account holder or even the spouse of the account holder within 30 days of the sale of the security which realized the loss.

Matt Solberg is a senior investment advisor for TD Wealth Private Investment Advice. For more information please contact me at 403-504-2780 or email me at matt.solberg@td.com

6
-5