Financial Planning Fridays #8: Tax Loss Swaps

Today we wanted to discuss something that we regularly complete for clients whenever we have the opportunity – tax loss swaps.

A tax loss swap allows us to capture realized losses that can be used to offset future gains without making a large change to your overall investment allocation. This how a tax loss swap works:

First, we choose an investment that is temporarily down, and we sell it to capture a realized taxable loss. This realized loss can now be used to offset future gains from other stock sales, or to reduce up to $3,000 per year in taxable income.

The tax loss also carries forward your entire life until you have completely used it.

The key to executing a tax loss swap is to buy another stock, bond, or real estate investment at the exact same moment that we sell the original investment that was down to ensure that we do not miss any time in the market, and we maintain the overall integrity of the investment allocation.

By purchasing another investment at the same time, you will likely still receive the eventual gain as the market rebounds, however, you may now also have the benefit of the tax loss.

We are always happy to talk with you and your accountant about this strategy and how it may fit into your overall tax plan.

In our next video in this series, we are going to discuss estate planning and gifting and how the rules are likely to change over the next few years.

Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.