If you have net capital losses so far this year or if you’re carrying forward any unused capital losses from your 2006 tax return, you can take tax-free gains by year-end. Suppose, for example, you have $4,000 worth of net losses so far in 2007 and a $3,000 loss carryforward, for a total net loss of $7,000. If so, you can take $4,000 worth of net capital gains by year-end.
Those gains will be tax-free while you can deduct the other $3,000 of loss carryforwards. After you take such gains to use up losses, you can spend the untaxed sales proceeds. Alternatively, you can buy back the securities you’ve sold, keeping your portfolio intact.
The latter strategy will raise your cost basis in the securities you have sold at a profit and then repurchased. A higher basis, in turn, will reduce the tax bill when you ultimately sell them. The wash-sale rules don’t apply if you buy back securities you’ve recently sold at a gain.
