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Investing Specialists

Strong Market Makes Tax-Loss Selling Especially Valuable

Preharvesting losses can help offset rebalancing pain, but the strategy won't benefit everyone.

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The S&P 500 has posted nearly a 20% year-to-date gain through Sept. 10. So why on earth should you be scouting around for tax-loss sale candidates? 

First, the timing question: Yes, you often hear about tax-loss selling in November and December, as you begin getting your arms around your tax position for the calendar year. But you can sell a loser from your taxable account anytime one of your securities is trading lower than your purchase price, book the loss, and use that loss to offset any capital gains. If your capital losses exceed your capital gains, you can use the excess to offset up to $3,000 in ordinary income (including wages) for that year. Any unused losses can be carried forward to future years. If you'd like to maintain a consistent economic position in that asset class or sector, you can purchase a similar security right away. (Just be sure you don't buy the same or a "substantially identical" security, which has the potential to trigger the Internal Revenue Service's wash-sale rule.) 

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Christine Benz has a position in the following securities mentioned above: RIO. Find out about Morningstar’s editorial policies.