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☕ DrinkCoffeeAndProfit
Smart money moves before breakfast
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Inspiration Quote for the Day
“It’s not the load that breaks you down, it’s the way you carry it.”
Lena Horne
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The Morning Ritual
The Loss Already Happened. September Decides Who Pays for Part of It.
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My friend Lou has a fund in his brokerage account that is down `$8,000`. He has had it four years. Every time it comes up he says the same thing, that he is not selling at a loss. I understand the instinct. I also think he has the sentence backwards.
The loss already happened. It happened while he was mowing the lawn. Selling is not what creates it. Selling is the only step where somebody else pays for part of it, and the calendar for that starts this month.
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In One Sip
► A realized loss cancels a realized gain, dollar for dollar. Most people know that part.
► If your losses run past your gains, `$3,000` of the rest comes off ordinary income. That is section `1211`, and the figure is `$1,500` if you file separately.
► Whatever is left over carries into next year, and the year after, with no expiration date on it.
► Buy the same thing back inside `30` days on either side of the sale and the deduction is disallowed. Section `1091` calls it a wash sale.
► Here is the part that costs people money. Buy it back inside your IRA and the loss is gone permanently, not postponed. The IRS said so in `2008`.
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Why It Matters for Your Money
Take Lou’s `$8,000`. Say he also took `$8,000` of gains this year trimming a winner. Sell the loser and those gains vanish for tax purposes. At the `15%` rate most families pay, he keeps +`$1,200` that was already spoken for.
Now say he has no gains at all. He still gets `$3,000` against his salary this year. In the `22%` bracket that is +`$660` back. The other `$5,000` waits in line for next year and does not expire.
The trap is the calendar, not the math. Sell Monday and buy the same fund back Wednesday and the deduction is disallowed. Do it inside your IRA instead and it is worse. That -`$8,000` does not move to the new shares. It simply stops existing.
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The Wealth Angle
Now here is the part most people miss. Harvesting does not mean going to cash. You sell the fund you hold and buy a different one the same morning, tracking something similar but not the same. Your money stays invested. Only the tax lot changes hands.
That is why this is defense and taxes in one move, which is exactly the pair you told me you wanted. You are not calling a bottom here, and not guessing what comes next. You are converting a number you already own into a deduction you can use.
One more thing worth knowing. That `$3,000` limit was written into the code in the `1970s` and has never been adjusted for prices since. A dollar has done a lot of traveling since then. The line has not moved an inch, which is a quiet argument for using it every year you can.
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☕ Key Insight:
Holding a loser does not undo the loss. It only keeps the loss private. Selling is the one moment the tax code offers to carry part of it for you.
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Coffee Break Move
If you are comfortable: Open the taxable account only, never the retirement ones, and sort holdings by gain and loss. Write down anything red and what you paid for it. Then check one thing before you touch a button. Is any automatic reinvestment buying that same fund each month? That drip can trigger the `30`-day rule for you while you sleep.
If you are stretched: Do the smallest version. Find one position you no longer believe in, and note the date you would sell it. Then count `31` days forward on the calendar and write that date next to it. Now you know your window, and you have decided nothing yet.
Lou called Sunday. He is selling the fund and buying a different one the same hour, so his money never leaves the table. He said it felt like admitting something. I told him it reads more like getting paid for a bill he already covered four years ago.
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