Minimize Tax on Capital Gains
Generally, when you sell stock or mutual fund shares, the shares you purchased first are considered sold first. That’s usually good news since it’s often beneficial to qualify for the lower long-term capital gain rate by selling shares that have been held more than one year. If you are selling less than your entire holding of a specific stock or mutual fund, there may be situations where you’re better off selling shares other than those that have been held the longest.
For example, the newer shares may have a higher cost-basis (because you paid a higher price for them) which would result in a smaller taxable gain or even a loss that can be netted against the gain. When you want to sell shares other than those you purchased first, you must properly notify your broker as to the specific shares you want sold.
Realize Losses on Stock
You can take losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, and then buy back the same securities at least 31 days later. Or, if you own a fund (such as an index fund), you can sell it, and buy a similar fund right away while still claiming the loss. This works great with index funds, because as long as you buy a fund of the same index, it contains all the same securities.
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