Retirement & Financial Planning Report

Taking capital losses can offset the tax on capital gains while excess losses can provide tax deductions. Sometimes, though, you sell a security that you’d still like to own. That’s especially true if the price is much lower now than it was when you first made the acquisition.

However, selling a security at a loss and buying it back right away won’t give you a capital loss. Instead, you’ll have a “wash sale” and that loss will be deferred until you eventually dispose of the security. If you do take a loss on a security yet want to retain it, how can you lock in the capital loss for 2011?

* Wait 31 days. If you sit on the sidelines for that long and then repurchase the security you sold, you’ll still get a capital loss. The risk, though, is that the security will shoot up in price while you’re not holding it.

* Buy something similar but not identical. If you have a loss on a mutual fund holding bank stocks, for example, you can sell it now and immediately buy another bank-stock fund. As long as the holdings are not identical, you won’t have a wash sale problem. The performance of the new fund may be similar to the performance of your original fund.

After 31 days, you can buy back the security or fund you sold at a loss, if you still want to own it.