If you lost a lot of money in the stock market over the past year, there is a silver lining—you can generate “capital losses” in your taxable investment accounts. How it works: Say you invested $20,000 in Tesla stock at the beginning of 2022. Through March 13, 2023, your shares were down 52%. If you no longer want to own those shares and decide to sell, you can re-deploy those assets elsewhere and harvest a long-term capital loss of $10,400.

Why capital losses are valuable: If capital losses exceed capital gains, you can use them to offset ordinary income—up to $3,000 a year ($1,500 for married couples filing separately)…and any remaining capital losses can be carried over indefinitely and used in the same way in future years. Strategies for tax-loss harvesting…

Don’t let the “tax” tail wag the dog. Long-term investors may not want to dump every underperforming investment, especially if you still believe in the company’s fundamentals and feel your shares can rebound in price.

Select the right cost-basis. You may have purchased shares of a particular investment at different prices over time. In general, it’s best to sell your highest-cost shares first to maximize your capital losses.

Don’t try to outsmart the IRS. The IRS “wash-sale” rule prevents you from taking a capital loss on a sale if you rebuy the original investment or a “substantially identical” asset within 30 days before or after the sale. Example: Swapping one S&P 500 ETF for another one would likely violate the wash rule, but buying a Russell 1000 ETF would not. Note: The wash-sale rule does not apply to Bitcoin and other cryptocurrency.

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