rules on selling stock for tax purposes?

Question

Getting killed on one stock this year, what are the rules to sell before the end of the year for tax purposes? Can I sell on the 31st? I dont know if thats too late since the settlement date of the trade might not be till 2008. Also is there a time frame of when I can buy the stock back with penatly etc?

should read without penatly at the end

Answer 1

I would have to disagree with Boston on one point, but its a big one in this instance. The trade date (the date the trade is executed) is what counts for tax purposes, not the settlement date.

Answer 2

The settlement date determines when you can take the loss. If it's in 2008, that's when you take it. Check with your broker to see when a sale will settle and be guided accordingly.

The wash sale rule will bar the taking of any loss if you purchase a "substantially identical" stock within 30 days of the sale. That rule spans tax years so make SURE that you wait the full 30 days before repurchasing the stock.

As to the respondent who asks why one would do that: You'd do that if your estimate of the long-term prospects for the stock was positive but wanted or needed a loss in the current tax year to reduce or eliminate other gains. That would be especially true if you had significant short-term gains that you needed to offset. Done properly, it can result in significant tax savings.

Answer 3

You can realize the loss any time in 2007 - even the 31st. You must wait at least 30 days to buy it back to avoid the wash rule. The question is, why buy it back if it's such a dog? Find something better to invest in and you can do it the same day you sell the dog.

Answer 4

Why invest the time in this? The law says that if you "constructively" replace the position you can't take the loss. Constructively is generally agreed to mean: replacing the position in another account, in your spouses account, using derivatives (buying calls and selling puts or single stock futures), swaps including total return swaps, etc.