Net capital losses up to $3,000 per year may be deducted as a result of stock losses. Otherwise, capital losses can offset capital gains, now or in the future.
However, you can’t take a capital loss if you buy back the security right away. Instead, you can buy an equal amount of the stock or fund you wish to sell. After waiting for 31 days, you can sell the original lot and avoid the “wash-sale” rules.
Say you bought 100 shares of XYZ Co. at $100 in 1999. XYZ now sells at $70, and you think the company is undervalued.
On November 1, 2002, you buy another 100 shares of XYZ, paying $70 per share.
On December 2, with the trading price at $80, you sell the original lot that you bought at $100.
This maneuver provides a capital loss on the sale of XYZ. Yet you didn’t miss out on the price move from $70 to $80 and you continue to own the stock, to profit from any ongoing gains.
