Tax Tip of the Week
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Turn your losses into a tax break
For the week of
July 1, 2001
If you are holding worthless or underperforming stocks in your investment portfolio,
you may be able to use them to cut your taxes this year. Up to $3,000 of capital losses in excess of capital gains
can be used to offset salary and other income.
Write off worthless securities.
You can take a loss only in the year a security becomes totally worthless. To take the loss on your 2001 tax return,
you must be able to show the security became worthless this year. For example, the company in which you own stock
went out of business this year.
Consider selling some losers in your investment portfolio.
If you have capital gains from sales you've made this year, or if you anticipate large capital gain distributions
from mutual funds, consider dumping some underperforming investments at a loss to offset these gains.
Use the new "deemed sale" election on your 2001 return to absorb
excess losses.
If you make this election, a stock or bond is deemed sold on January 2, 2001, and reacquired on the same date.
You'll pay tax on the "phantom gain" (the difference between your cost and the January 2 value), but
that boosts the tax basis of assets. Your capital losses can be used to offset the "phantom gains" triggered
by this election.
This strategy has another benefit. By making this election, upper bracket taxpayers can use the new 18% capital
gain rate when they sell assets purchased before 2001 (assuming the asset is held more than five years beginning
January 1, 2001). Without this election, the new rate only applies to assets purchased after 2000 that meet the
five-year holding period test.
Before you realign your portfolio, give us a call to discuss how your decisions
will affect your income taxes.
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tax tips.
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and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
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