I had a rude awakening last April, and vowed NOTto repeat the performance. The market turbulencethis year gave me plenty of chances to take lossesas I upgraded my portfolio.Right now, I still have a taxable long-term gainof a few thousand, but my short-term is in negativeterritory.My QUESTION: When my taxes are prepared, will theshort-term loss offset the long-term gain? I realizethat they are treated differently, but what I'masking is whether the IRS allows you to deduct theshort-term loss and pay on the long-term gain.(Sorry for my confused language) I'm thinking of taking another loss before theend of '98. Then my short-term losses wouldexceed my long-term gains even further. Isthis OK...or is there some screwy rule I'm breaking?Any help appreciated....(obviously I need it <Grin>)Jack
[[ Right now, I still have a taxable long-term gain of a few thousand, but my short-term is in negative territory. My QUESTION: When my taxes are prepared, will the short-term loss offset the long-term gain?]]Yup...they sure will. They'll wipe out your long term gains, and take your preferred tax treatment on the long term gains right along with 'em.[[ I realize that they are treated differently, but what I'm asking is whether the IRS allows you to deduct the short-term loss and pay on the long-term gain. (Sorry for my confused language)]]Uncle Sammy doesn't allow this. It requires it. When you net out your gains and losses, you start by netting your short term gain/losses. Then you net out your long term gains/losses. Then you offset those two results and arrive at an answer. So if you have long term gains and short term losses, the short term losses will offset the long term gains. [[ I'm thinking of taking another loss before the end of '98. Then my short-term losses would exceed my long-term gains even further. Is this OK...or is there some screwy rule I'm breaking?]]No rules that you are breaking. It's just that you are losing the benefit of the long term gain tax preferred treatment. But there are certainly no laws or rules that you are breaking.[[ Any help appreciated....(obviously I need it <Grin>)]]Hope this DOES help...TMF TaxesRoyWant to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. There is still time available to do that tax planning (and tax saving) before the end of the year. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Pay special attention to the "archives" section. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.
Thank you for the prompt and helpful reply!One other little question, if I may.You seem to imply that it's not too smart tooffset the LT gains with ST losses.Seems to me that the only way around that isto try to match them up, right?But...I kind of believe in that saying:"Don't let the tax tail wag the investment dog"(did I get that right?)So...I base my buy/sell decisions mainly onwhat I think are the best stocks to own NOW.IF I happen to be in a position to take a lossto improve my tax status, I go for it.But if I start worrying too much about long/shortterm, I'm afraid I'll lose the main focus ofmy strategy. Make sense? Thanks again.
[[ Thank you for the prompt and helpful reply!]]You are very welcome. I'm glad that it helped.[[ One other little question, if I may. You seem to imply that it's not too smart to offset the LT gains with ST losses.]]I'm sorry that I implied that in my response. What I was TRYING to say was that it is important to take a second look when using ST losses to offset LT gains. It shouldn't be simply a "knee jerk" reaction. [[ Seems to me that the only way around that is to try to match them up, right?]]When at all possible, I believe that the answer is yes.[[ But...I kind of believe in that saying: "Don't let the tax tail wag the investment dog" (did I get that right?)]]You did. And I believe that statement also.[[ So...I base my buy/sell decisions mainly on what I think are the best stocks to own NOW. IF I happen to be in a position to take a loss to improve my tax status, I go for it. But if I start worrying too much about long/short term, I'm afraid I'll lose the main focus of my strategy. Make sense?]]Of course it makes sense. YOU have to do what is right for YOU and YOUR portfolio and your personality. If it makes sense to take your ST losses against your LT gainers, then be my guest. I would never try to talk you out of that position. But let me give you an example...I have a client in the 36% bracket. He has basically "zeroed out" his ST gains agains his ST losses. He has some large LT gains (which will be taxed to him at 20%...a substantial tax savings for him). He has some remaining ST losses that he could use to offset some of his LT gains this year. But HE has decided to hold off on recognizing those gains this year....and will wait until next year in which to use them. Why? Because he believe that in 1999 he will have other short term gains in which he will be able to use to offset those losses. He would much rather pay the 20% on his LT gains this year, and keep his ST losses in his "hip pocket" in order to use next year to offset ST gains (which would be taxed to him at a 36% rate).What happens in 1999 if he finds that he can't generate any ST gains? Would this strategy backfire on him? Potentially yes. But he already has some ST winners that he will most likely be selling early in 1999 that on which he can shelter the gain by his "hip pocket" ST losses. See how it works...at least for him? Does this mean that this would be the proper strategy for YOU? Not necessarily. But it might give you some food for thought. [[ Thanks again.]]My pleasure. I hope that gives you some food for thought. TMF TaxesRoy
Thank you, Roy.NOW, I get it.I'll leave you with one more saying:"You'll never go broke taking gains"Is the corollary: "You'll never get richtaking losses?" <G>Anyhow....thanks again and Happy Holidays!
[[I'll leave you with one more saying: "You'll never go broke taking gains"]]And I'll give you one of my favorites:Pigs get fat. Hogs get slaughtered. And my next favorite...There was a young girl from Nantucket, Who.....Oops...sorry...this folder is rated "G". I almost lost my head there for a second. [[ Anyhow....thanks again and Happy Holidays!]]And my very best to you and yours, JohnE...TMF TaxesRoy
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