Depending on your tax bracket and income, you may also reduce your tax liability by selling off some of the losers in your investment portfolio to wipe out any gains, said Thomas Scanlon, a certified financial planner and certified public accountant with Raymond James Financial Services.
The IRS allows investors to offset capital gains with capital losses dollar for dollar. Any excess capital loss can be used to offset ordinary income, up to $3,000 per year. Leftover capital losses beyond that can be carried forward to offset gains and income in future years.
"If you expect your income to be lower next year or remain the same, it may make sense to harvest losses," said Scanlon.
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Such strategy yields the biggest tax savings for single filers making over $200,000 and married couples earning more than $250,000, who are subject to the additional 3.8 percent Obamacare/Affordable Care Act Net Investment Income Tax on unearned income.
Just be mindful of the wash-sale rule.
The IRS rule prevents investors from claiming a loss on shares they repurchase within 30 days after, or before, the date of the sale.