The tax code permits you to deduct up to $3,000 worth of net capital losses each year but excess losses must be carried forward to future years. Thus, you should check your 2001 tax return to see if you’re carrying forward any unused capital losses. If so, take gains to soak them up.
Suppose, for example, you have $11,000 worth of loss carry-forwards. You can take $8,000 worth of paper profits this year, tax-free, and deduct the other $3,000. (If you’ve already taken, say, $2,000 worth of gains, you can take an additional $6,000 by year-end.)
If you wish, you can simply pocket the sales proceeds, knowing your prior losses will offset any taxable gains. Alternatively, you can buy back the securities you sell: this keeps your portfolio intact while raising your cost basis, reducing future tax obligations. There are no “wash sale” implications when you buy back securities you’ve sold at a gain.