Capital gains/losses - how do i minimize my losses here??

[lzo]

Hi

I'm new to stocks, so please bear with me.

Earlier this year i played around with day trading stock options.  I failed miserably - $17.5k loss for the year.

I understand that a person can only take up to $3000/year in capital gains loss, and then roll over the balance to the following year, etc.  That means it'll take me 6 years of $3000/year deductions.

At the same time, I started a job last year with a public company, and had stocks vest this year.  I've also purchased stocks through the employee stock purchase plan (ESPP).  Those stocks over the course of the year have grown by around $13,000.

If I understand correctly, if I were to sell the stocks that have vested, and that i've purchased through ESPP, the $13,000 would be short term capital gains, and would offset the -$17,500 short term capital gain losses for my stock options. 

On the other hand, if I were to hold the stocks I own, then I wouldn't pay taxes on them until at some point in the future I sell, and at that point i would pay long term capital gain taxes, which are much more.

Thinking of just 'cashing out' (selling my stocks) so i can get that $13,000 capital gain tax (to offset the $17,500 capital loss), meaning i'd only have a $5500 capital loss for the year.  Right away, same day, I'll take that money from selling the stocks, and purchase the stocks right away again.  So i'd pay the tax, but would still own the same amount of stock, right?

Example:

If I own 90x Home Depot stocks.  Total of $36,864 at current ticker price, but a 'capital gain' of $13,000 for the year.

I can sell all 90 stocks, meaning i'd get $36,864, and a capital gain of $13,000

Right away I buy 90x Home Depot stocks, so i end the year with a $13,000 short term capital gain tax for the year, and I still own 90 stocks.

Does this make sense?  Am I missing anything here?

[Critter-3]

If the ESPP shares are not locked into a company situation like a retirement or profit sharing account  and you have full access to the stock  then you can sell stock owned/housed in a regular broker account to offset the losses. 

[lzo]

Yes the stocks I got through my company are one of two types:

- Signing bonus stock (that vested a year after I joined) - I got the stock sitting in my broker account

- ESPP that i was able to purchase through my employer at a 10% discount, up to a specific amount.  That stock is also in the broker account

Both can be withdrawn at any time

My understanding is any gains from stocks (whether stock options, purchasing stocks, etc) that are within the tax year are short term gains, and any that go to the NEXT tax year are long term gains, right?

[Critter-3]

Yes ... ALL stock sales during the tax year are netted against each other on the Sch D and if you have more losses than gains then up to $3000 of capital loss can be used to offset ordinary income on the tax return and the unused balance carries forward to next year and the process repeats itself until all the loss is used up.   Just beware you cannot repurchase any of the losers  within a 30 day window (before and after the sale) or you will trigger an unwanted wash sale.  

[lzo]

Thank you - very interesting on the wash sale.  i wasn't aware, but i don't think that would apply to me, as i would be selling the stocks that have capital GAIN, and then right away purchasing them again, just so the gains offset the losses.  that should be fine, right?

[Critter-3]

I was referring to all the losers you got rid of that produced the massive loss not anything sold at a gain.

https://www.investopedia.com/terms/w/washsalerule.asp#:~:text=The%20Wash%2DSale%20Rule%20states,befo....

[Mike9241]

while you may have an overall gain. the law says you look at your tax basis in each purchase and the related sales price to determine gain or loss.  example sell 500 shares with an overall tax basis of $5000 for $6000 thus it looks like there's a $1000 gain. however, say 250 shares have a tax basis of $12.50 each total $3125 while the other 250 hares have a tax basis of $11.50 each total $2875. the first 250 would have a loss of $125 which would be disallowed under the wash sale rules if repurchased within 30 days of the sale. while on the other $250 you would have a taxable gain of $1125.  just pointing out how this tax rule works.

[lzo]

But if all the shares i'm selling have gained in value since their initial purchase/vest, then this wouldn't apply to me, right?

I mean some shares were purchased and have increased 2%, others 45%.

Wouldn't this only apply if i were to sell shares that had DECREASED in value, and then immediately repurchased?

With my Home Depot stock, all of them have increased - every lot.

[Anonymous_]

@lzo I believe you have been informed that the wash sale rules apply to losses, not gains.

See https://www.irs.gov/publications/p550#en_US_2020_publink100010601

[lzo]

Yup - just making sure 🙂

Thanks!

[fanfare]

What you propose makes no sense.

First off, Long Term capital gains tax rate is less than Short Term, not more.

Your loss is your loss and will carry forward indefinitely, giving you a $3,000 deduction every year until used up,

or you trade/invest elsewhere for a profit, which will also use it up.