Back To The Future

The tax code allows you to deduct up to $3,000 worth of net capital losses on your tax return while excess losses can be carried forward to future years. Therefore, you should check your 2004 tax return to see if you’re carrying forward any unused capital losses. If so, you can take gains to soak them up.

Suppose, for example, you have $10,000 worth of loss carry-forwards from previous years while you haven’t taken any capital gains or losses this year. If so, you can take $7,000 worth of net capital gains by year-end. Those gains will be tax-free while you can deduct the other $3,000 of loss carry-forwards.

• After you take such gains to use up losses, you can pocket the sales proceeds.
• Another tactic is to can buy back the securities you’ve sold, keeping your portfolio intact. Such a sale and buy-back raises your cost basis, reducing future tax obligations.

You won’t have to contend with the “wash-sale” rules if you buy back securities you’ve just sold at a gain.