Q-1:

Subject: our stocks

Kerry -

We're considering selling what stock we have left in all our portfolio and using those losses to help offset earnings for this year (2005) and re-investing what money we realize that same day in another stock.  We have at lease $12,500 in unrealized losses.  What do you think?  We were considering Walgreen's for re-investment, would you have any other ideas for a company to invest in?

A-1:

One thing to be careful of when dealing with capital losses is the fact that they can only be used to offset capital gains and only $3,000 can be used to offset other kinds of income. 

I don't have any stock buying secrets.  In fact, nobody does, which is why I have always believed that real estate is the best investment and have never actually bought any stocks.

Kerry

Q-2:

Subject: End of the Year 2005

 

Dear Kerry:

Please do not lump us in with "those spooked EOY" folks who worry about taxes.  But two actions occurred that may have some consequences. We sold some rental properties and failed to do 1031 exchanges. 

Stock broker says we have a $321.00 loss and we may want to SELL stock for a loss.

Whatchathink?  Go for more losses?

A-2:

Selling stock just to generate tax losses is not the best way to manage an investment portfolio.  Stocks that have no potential for future gain and possible loss should be dumped and the proceeds put into something more productive.  If the stock has good upward potential, you should keep it.

The tax savings of losses would be about 20%, counting both Federal & State.  A $321 loss would save you only about $64 in taxes.  Selling them just to show a loss wouldn't save enough to cover much more than the commission you would have to pay to your stockbroker.

Another thing to keep in mind in regard to generating capital losses with stocks is that IRS has what's called the "wash sale rule" which prevents anyone from deducting losses on stocks that are repurchased within 30 days of the sale.  This is to prevent people from capitalizing on downturns in stock values to generate paper losses, and then buying the stock back to ride it back up.

Kerry

 

Labels: 1031

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/28/2005 03:04:00 PM Send this post: