I currently have a realized long term loss of around $9k for 2023 from selling shares. I have several other long term holdings which are well in profit. I understand that I can only deduct up to a 3k loss against capital gains or income each year.
Should I sell stock and realize a gain before the end of the year to offset the remaining 6k loss to avoid being taxed on this gain when I sell it in the future?
Note that you can carry the unused loss ($6k) forward to the 2024 tax year.
"Should I sell stock and realize a gain before the end of the year to offset the remaining 6k loss to avoid being taxed on this gain when I sell it in the future?"
I don't necessarily recommend making investment decisions solely on the tax implications. Yes, you could realize a gain of up to $9000 and it would be tax-free, offset by the loss. But do you want to sell your positions if not for the tax implications? Do you need the money for spending, or would you invest in something else and would that investment be as good?
As long as you had a gain, you can re-buy the same investment without running into special rules, except that you will reset the holding period. By re-buying the investment, you will have a higher cost basis and pay less tax in the future, assuming it continues to gain value.
Alternatively, you can simply invest as seems best to you, take the $3000 against your other income, and carry the loss forward. Maybe you will have gains next year to offset the loss, or you can carry the loss forward until it is used. up.
One thing that wasn't clear is if you have gains.......you first get to offset all the losses against the gains (not just up to 3,000). Then after applying the loss to the current gains you can take an additional max loss of 3,000 per year. So you can use up more of the loss in one year.
So you can sell 6,000 of gains and use up 6,000 of the loss and then still take the remaining 3,000 loss to deduct on your tax return to use up the whole 9,000. Does that make sense?
So, even if I did not realize any gains this year, I could deduct 3000 on my regular income, and carry the remaining 6k loss forward to be deducted against income 3000 per year going forward, or against future realized gains. If I understand correctly, there are no beneficial tax reasons for selling winner shares to offset against this years realized loss.
Hopefully that makes sense, and thanks for everyone's help.