Offsetting Capital Gains with Losses

Thu. December 28, 2000 12:00 AM by Newstream

New York, NY - Investing is a game of numbers. Sometimes you make money, and sometimes you don't. When you do, there is a way to offset that gain and reduce your tax bill.

The way it works is an investor would offset a gain using a loss that may have occurred on another security. It's a fairly common practice, but it has to be done by the end of the trading year, which this year is on the gavel of December 29.

"Capital losses can be used to offset capital gains and ordinary income," said Tamara Haskins of Merrill Lynch. "Losses are allowed to be offset against gain on a dollar for dollar basis. There's no limit to the amount of capital losses that can be used to offset capital gains."

But there is a limit if an investor chooses to use that loss to offset ordinary income such as that from a job. The limit is three thousand dollars, even though the remainder of the loss that is used can be carried over to the next year. Is this strategy available only to the well heeled?

"Any investor that has realized a loss can utilize the loss to offset capital gains," said Haskins. "So it's available to any income tax bracket."

Offsetting a gain with a loss is an excellent way for an investor to save on taxes. But even though those savings may not be realized until tax time in April, now, before the end of the year, is when this strategy must be implemented.

News, photos provided by Newstream