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GOOD MORNING.
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THE LEAD
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With the Nasdaq 100 down roughly 10% from its October record as of early this week, many investors are looking at losses this fall, and those losses may be worth something at tax time.
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The strategy is called tax loss harvesting. It means selling an investment that has fallen below what you paid for it so you can use the loss to lower your taxes. It only works in a regular taxable brokerage account. Losses inside an IRA or 401(k) do not count, because those accounts are already sheltered from yearly taxes.
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Jeff Brown believes by the end of this month, this Elon Musk new AI breakthrough will collide...
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With a powerful market prophecy that has correctly predicted some of the biggest market booms going back to 1950...
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Giving Americans a rare and perhaps last chance to turn a small stake into an entire six-figure nest egg in the next 12-18 months.
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The last time something like this happened, investors had a chance to turn a small stake of $10,000 into as much as $366,000 in just 14 months.
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Here is how the math works. A loss you lock in by selling first cancels out capital gains, which are the profits from selling other investments. If your losses are bigger than your gains, you can use up to $3,000 of what is left to reduce your regular income, such as pension income or IRA withdrawals. Anything beyond that carries forward to future years.
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Let's put numbers on it. Say you sold some shares earlier this year for a $5,000 profit. You also own a fund that is now worth $10,000 less than you paid. If you sell that fund by December 31, the first $5,000 of the loss cancels the tax on your gain. The next $3,000 lowers your taxable income. The last $2,000 carries into next year. For a couple in the 22% tax bracket who pay 15% on gains, that could save about $1,400 this year.
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Selling a loser does not have to mean leaving the market. Many investors put the money right back to work in something similar but not the same, such as a fund that tracks a different index. That way the portfolio stays invested while the loss still counts on the tax return.
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There are limits. Taxes should never be the only reason to sell something you otherwise want to own. And if you are in a low tax bracket, a loss may save you little this year, though it can still carry forward to help later.
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Timing matters too. The sale must happen by the last trading day of the year, which is Thursday, December 31. Waiting until the final week can mean rushed decisions, so it helps to start early. There is also one rule that trips up many investors, explained below.
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The practical takeaway: before mid December, look over your taxable account for anything worth less than you paid. Write down any gains you have already taken this year. Then bring both lists to your tax preparer or advisor and ask whether a sale makes sense for your situation.
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THE NUMBER THAT MATTERS
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30 days
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That is the window on each side of a sale under what the IRS calls the wash sale rule. If you sell an investment at a loss and buy the same or a substantially identical one within 30 days before or after the sale, you cannot claim the loss this year. That makes the full window 61 days.
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In most cases the loss is not gone for good. It gets added to the cost of the new shares, so you get the benefit later when you sell them. The exception is buying the shares back in an IRA, where the loss can be lost permanently.
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The rule is easy to break by accident. Automatic dividend reinvestment counts as a purchase. So does buying the same fund in your IRA or in your wife's account. Before harvesting a loss, turn off automatic reinvestment on that holding and check every account in the household.
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Pay Off Your Mortgage or Keep Your Money Invested?
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Join us on our official YouTube channel, The Patriot Investor. Watch the discussion and subscribe for more.
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WHAT WE’RE WATCHING THIS WEEK
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INFLATION DATA
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MEDICARE: Open Enrollment Closes Monday, December 7
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You have about a month left to change your Medicare Advantage or Part D drug plan for 2027. Plans can change their premiums, doctor networks, and covered drugs from one year to the next, and if you do nothing, your current plan will usually renew automatically. Any changes you make take effect January 1. This year there is an extra reason to look closely: Medicare's negotiated prices for 15 drugs, including Ozempic and Wegovy, take effect in 2027. Pull out your medication list, including doses, and run it through the Plan Finder at Medicare.gov. It is an hour well spent.
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SMART MONEY SIGNAL
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FUNDS: Year End Fund Payouts Can Bring a Surprise Tax Bill
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Mutual funds must pass along the profits they made from selling holdings during the year, and most do it in December. In a taxable account, you owe tax on those payouts even if you reinvest them and even if the fund lost value this year. Many fund companies post their estimated payouts in November. If you plan to add money to a fund in a taxable account, check whether a large payout is coming first. Buying just before it means paying tax on gains you never enjoyed. Exchange traded funds tend to make smaller payouts, which is one reason many investors hold them in taxable accounts.
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WORTH KNOWING
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SOCIAL SECURITY: Check Your Earnings Record While Errors Can Still Be Fixed
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Your Social Security benefit is based on your highest 35 years of earnings. If a year is missing or understated, your check could be smaller than it should be. You can review your full earnings history by creating a free my Social Security account at ssa.gov. Compare it against old pay records or tax returns. Act promptly if something looks wrong. In general, Social Security can correct a year's earnings only within 3 years, 3 months, and 15 days after that year ends, though there are exceptions. Catching an error before you claim is far easier than fixing it afterward.
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A stock or fund that lost money this year can still do some good by lowering your tax bill. The loss only counts if you sell by December 31 and avoid buying the same thing back within 30 days. Talk it over with your tax preparer before the year runs out.
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