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December 19, 2007

This is the time of year when having clinkers in your stock portfolio isn't quite so painful. If you have capital gain for the year, you still have a few trading days to offset them by selling your loser stocks. Just remember a few simple rules:

-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.

Remember: capital losses are fully deductible to the extent of your capital gains. They can also offset up to $3,000 in ordinary income. Losses over that amount carry over to future years. So bid your losers a fitting farewell by selling them this year to help you out at tax time.

This is another in our series of daily tax ideas through December 31. Collect them all!

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Just curious. Let's say you have a capital loss in company stock purchased through a stock purchase plan. The plan purchases stock every quarter at a 5% discount. Do the wash sale rules still apply if you sell the crappy money losing stock and then the plan repurchases it a few days later on Dec 31? Please ignore the stupidity of continuing to invest in company stock that is still in a capital loss position even after a 5% discount.


Chad, that is correct. If you buy 5 shares, the loss on the oldest 5 of the shares you sold is disallowed, and the loss is rolled into your basis for the new shares.

Dang. I mean, uh, that's a very interesting answer to my hypothetical. Lesson, lock in your losses at the end of November. Maybe I'll just decide the 16th amendment wasn't properly adopted and barricade myself in my house. Can I trust you to surreptitiously deliver food?

If I sell the stock on Dec. 31st (from my Fidelity Brokerage account) but it does not settle until 3 business days later, will the loss be deductible?


Unless your trade is a short sale, the trade date, not the settlement date, is the date your loss is deductible.

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