I can’t seem to find the answer to this question and was hoping someone here would know. I have a stock that is doing terribly and I’m going to sell it for a rather large loss. I have another stock that is doing fantastically. If I sell the stock that is doing great, I will realize a gain that is just about equal to the loss that I will experience in the stock that is terrible. Can I sell the stock that is doing well just to realize the profit so that I can write it off against the loss, and then buy the great stock back just about immediately? I have no intention of buying the losing stock back so it won’t trigger a wash sale.
My question is very similar to this question, but with several add-on questions.
I have an income of <$30000 this year. I intend to sell my stock to minimize my capital gains tax by selling before end of year.
However, my question is now when can I buy it back? I read some answers say immediately (within this year)? So then capital gains is just calculated with the income of when you sell? Is there a time component I should consider?
Thanks!
Is it better to realize the loss and buy back in at the lower price or just hold it?
I'm not a big fan of hypothetical questions. It depends on what you're trying to optimize for, i.e. taxes or total return. Most investment advisors would tell you "don't let the tax tail wag the investment dog."
There's an opportunity cost to selling with the intent to buy back in at a lower price. What if it recovers as quickly as it dropped? What if it drops further?
Time in the market generally beats timing the market. If you liked the stock at $150 and intend to hold it indefinitely, you should love it at $100 and consider buying more instead of selling.
Adding my comment to the answer:
You can't realistically assume that you're selling and buying at the same price.
Even if you did, what's the point? If you're selling/buying near instantaneously the loss will be disallowed due to the wash sale rule, which prohibits selling an investment for a loss and replacing it with the same or a "substantially identical" investment 30 days before or after the sale.
If you wait long enough, it's virtually impossible to buy back in at the same price. At a minimum, you're crossing the bid-ask spread.
If you're asking about taxes, you'd need to specify a country. If you're in the US (based on your profile), you'd have a wash sale unless you bought the shares back more than 30 days later in which case you wouldn't be allowed to deduct the capital loss. So in the US, unless you want to exit the position and stay out for more than 30 days before buying the shares back, you're better off holding the shares.
If you are willing to stay out of the position for more than 30 days, then it can be reduced to a math problem. But you'd need to make guesses about things like what the capital gains tax rate will be when you sell, what discount rate to apply to get the present value of future cash flows, etc. And if you're thinking of holding the shares until you die, potentially you'd never owe capital gains tax...
Like maybe sell a stock at $50 and then rebuy the next day when it’s at $45…
Is robinhood capable of this or is there a waiting period for selling/buying?
This almost sounds like tax gain harvesting (which is similar to, but less talked about that, tax loss harvesting), where you sell shares at a profit while in a low (or 0!) tax bracket to minimize the tax you owe, and re-buy at the higher price to reset the basis so that a future sale will have a smaller gain (or even a loss), minimizing potential tax impact.
My trouble with your approach is that converting long-term gains to short-term gains is usually (or always, unless there's a special case I'm missing) undesirable. Long-term gains get preferential tax treatment; the 3 rates are 0%, 15%, and 20%, and the rate is always lower than the rate on ordinary income (which is the rate applied to short-term gains).
Let's look at an example (based on 2022 numbers): you are a Single person earning $40,000 per year, and you have $1,000 in long-term capital gains, which last year was only $500 in gains (also long term). If you sell and realize these gains this year, your income is $41,000, which means these long-term gains are taxed at 0%. Alternately, if you sold and rebought last year, your $500 gain was taxed at 0%, but when you sell now, your new $500 gain is taxed as ordinary income (12%).
The purpose of the wash sale rule is to prevent tax loss harvesting, which defers (not eliminates) the tax benefits of losses. Technically you can also have tax gain harvesting if you expect your capital gains rate to be higher in the future, or have losses that you are willing to use to offset those gains.
As of now there is no rule against tax gain harvesting, since it benefits you somewhat but does not hurt the government. They are typically more concerned about deferring taxes than what rate you end up paying. In other words, the rules are geared towards getting tax money sooner, even if it means you get the benefit of a lower rate.
Note that it would be very unusual for long-term rates to be higher than short-term rates in different tax years, but it is plausible for you to have lower short- or long-term rates now than in the future since they are based on ordinary income brackets. So if you have an unusually low income year you might actually employ tax gain harvesting to take advantage of lower gains rates now.
Also note that wash sales are not illegal, they just defer the tax break until you ultimately close your position. You can still sell at a loss and immediately buy back, you just don't get the immediate tax benefit.
The only way this could work is if you convince your broker that there was a malfunction in their site/app and they agree to adjust their records as if you had not sold the stock. If you have a good case, they might be more likely to agree to this since the trade was immediately reversed, so what you're asking for wouldn't cost them much (compared to someone who's claiming that a malfunction led to an outright loss and is seeking reimbursement for that loss).
Otherwise, if you made an unintended trade by your own mistake in a taxable account, your 1099-B will show that trade and you will be stuck with the tax consequences (in this case, a taxable gain -- there is no "wash sale" gain exclusion). You'd just have to look at the bright side, that the shares you repurchased have a higher basis now and you will owe less tax in the future.
It depends. If the 10 shares you sold were sold at a loss, then buying back those 10 shares immediately after, results in a wash sale, in which case there is no tax consequence. If the 10 shares you sold were sold at a profit, then you will owe capital gains taxes on those profits when you file your taxes.