Thanks for the advise to go and try and prove it to myself. I actually did go and look at Schedule D, 1040 lines 1 and 3a, and the Qualified Dividends and Capital Gain Tax Worksheet.
I also discovered -- I think -- that if you have the choice to blank out your ST gains or your LT gains by selling another asset, it seem better to sell the ST loser first.
I went through some toy examples, setting 1040 Line 1 as $100K and Line 3a as 0 for simplicity. For the ST and LT scenarios, I had a stock sale for each category with a $10K gain, and a stock sale for each with a loss of $5K, for a net $5K gain in each category. On Schedule D, lines 7 and 15 are each $5K, and line 16 is $10K.
So to my question of whether it is better to sell more ST or LT losers first, let's say I can sell one more stock at a loss for $5K - either a stock with a ST loss for $5K or a stock with a LT loss for $5K.
If I choose the ST stock to sell, I have a net 0 for line 7 on Sch. D, and lines 15 and 16 are $5K. On the Cap Gains Worksheet, Line 3 would be the smaller of 15 or 16 -- doesn't matter since both are $5K -- and line 5 is $95K.
Line 17 of the worksheet is 5K and the 15% CapGain tax is $750, and the tax from the tax table for line 22 is based on $95K.
If I choose the LT stock to sell, I have a net $5K for line 7 on Sch. D, and line 15 is 0 and line 16 is $5K. On the Cap Gains Worksheet, Line 3 would be the smaller of 15 or 16 -- $0 -- and line 5 is $100K. Line 17 of the worksheet is 0 and the 15% tax is 0, and the tax for line 22 is based on $100K.
So, by pumping through these numbers, it seems like it is to one's advantage to try and match up ST losses with ST gains before selling a LT loser to minimize the tax paid, if given a choice.
Thoughts? Please feel free to correct me and/or point out my error -- I am by no means a tax guy; this is why I have used TT for over a decade.
