What You Need to Know About Selling Slumping Stocks to Capture Tax Benefits

Do you know when a good time is to sell a stock that has had a loss in your account? Sometimes, selling a stock that has suffered a loss can be a great strategy for turning a bad investment into a smart tax break.

In a taxable acocunt, your losses can offset capital gains. On your traxes you are able to write off up to $3,000 a year as a loss. So, if you are holding a stock that has been underperforming in your taxable account, then maybe you should consider selling it and offsetting the loss with gains from your other investments. If you change your mind, you can always buy the asset back after 30 days. So, consider getting rid of the underperforming stocks in your portfolio.

Here is an example: Let's say in a taxable account you bought $20,000 of ABC stock and $20,000 of XYZ stock a few years ago. Now, ABC is worth $40,00 and XYZ is worth $0. You could sell XYZ and ABC and the gains of ABC of $20,000 would be offset by the losses of XYZ. So, you could gain $20,000 but not have to pay any capital gains taxes.