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<<I currently have 3 of my 12 stocks down about a total of $8000. I am in the 40% tax bracket (CA
State & Federal). If I sell these 3 stocks before the end of the year I can save about $3200 right
away. Then buy them back after 31 days to avoid the Wash sale rules. My thinking is that the only
risk is that the stocks move up 40% or more during the 31 days. Is this foolish thinking? I trade
online so the cost of the transactions are very low.>>

Well...remember a few things...

If you have no other stock "winners" to use to offset the $8k in losses, you will be limited to only $3k in losses. The remaining $5k in losses would be carried over to the next tax year.

And if you DO take these losses against current gainers, do you want to take short term losses against long term gains? Remember that your long term gains held for more than 18 months buys you a max capital gains rate of 20%. Do you really want to wipe out that favored tax rate with a current loss? Hummmmmm????

So if you have looked at all of the angles, and are comfortable with selling and waiting for 31 days to buy back, no problem. As you state, your only risk is that the stock rises substantially during the time that you are out of the stock. But you really want to analyze your capital gains and losses siutation before you make this decision. It may be a good deal for you. But upon further reflection, you may find other gremlins hiding in your plan.

Good Luck...
TMF Taxes
Roy
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