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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: rudyprins who wrote (25447)5/27/2000 3:52:00 PM
From: Mike Buckley  Read Replies (1) of 54805
 
Rudy,

Since this is a forum of international investors, I need to mention that your question and my response is relevant to U. S. taxes.

Creating a tax loss with a stock you want to buy back in 31 days is definitely worth considering since taxes have such a huge impact on net returns. However, I'm sure you've already thought through the possibility that a stock can rise dramatically while you're waiting for the 30-day window to expire. ASsuming the same dollar loss, the write-off is greater for stocks held less than a year than for those held more than a year.

Remember that you can only deduct losses to the extent that they exceed claimed profits by $3000. You can carry forward unused losses as many years as you want, but because of the time value of money, they lose a little value with each passing year of inflation. If you're a long-term holder like me, that becomes significant because you might end up sitting on unused tax losses as you wait years and years to sell a profitable position.

There is also the corollary to which you suggest, a scenario I'm faced with. I have some healthy unused losses. (Thank you, Rainforest Cafe.) Should I sell all or part of a profitable position I've held more than a year when it gets overvalued, knowing I'll want to buy it back and knowing that the capital gains will be offset by the unused losses? Or should I wait until a company's fundamentals change to the point that I no longer want to own it and use those tax losses then?

By the way, remember that I'm not a tax expert. :)

--Mike Buckley
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