If you hold stocks or funds selling at a loss, don’t keep them forever, hoping you’ll “break even.” Instead, take capital losses when you can. Up to $3,000 worth of net capital losses can be deducted against ordinary income each year while excess losses can be carried forward to future years.
Conversely, if you never take your paper losses and you die with these holdings, the unrealized capital losses won’t provide any tax benefit. Even if you have realized losses, at your death a capital loss carryover will be extinguished, providing no benefit to your heirs.
A better approach is to take losses quickly. The sooner you realize losses, the more opportunity you’ll have to use capital loss carryovers to offset any capital gains you realize.
What’s more, taking a capital loss may lower your income, for tax purposes, and provide many secondary benefits, such as reducing the tax you’ll owe on your Social Security benefits or allowing you to have a Roth IRA.
