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IT'S LOSER TIME!

December 21, 2006

While we all like to remember our good investments, this is the time of year to give some thought to your losers. We often neglect these red-headed stepchildren of our portfolios. It's not pleasant to think of that stock or mutual fund we purchased with such high hopes, only to see them cruelly dashed by an unforgiving market. We let them lurk in the recesses of our brokerage accounts, in the vague hope that someday they will redeem themselves.

Well, forget about it. They're toast. So make them do something useful for once. Sell them, and take the losses on your tax return.

Capital losses are deductible to the extent of your capital gains, plus $3,000. If you have losers in the portfolio, paying taxes on your capital gains this year is at least partly optional.

To deduct these losses, keep a few simple rules in mind:

The loss has to be realized in a taxable account. Selling a loser in an IRA or 401(k) plan doesn't give you a deductible loss.

Be sure the trades are executed no later than December 31. For long positions, the trade date controls.

If you have a loss on a short sale, the settlement date has to be no later than December 31.

You can't buy the same stock within either 30 days before the sale or 30 days afterwards. If you do, the "wash sale" rules disallow your loss.

Don't pay optional capital gain taxes; send your losers out with a smile.

 • 2006 year-end tax planning       Bookmark: del.icio.us • Digg • reddit