Tax Selling

Tax selling, similar to tax loss harvesting, is when an investor sells off an investment at a loss to save on taxes from capital gains from other investments.

Let’s take a look at Steve, who wants to cash in on his cornballer stock, which would make him a lot of money. If Steve realized this capital cornballer gain, he’ll have to pay taxes on it though, which reduces the money he gets to keep from the investment. Steve also has another stock, one that’s worth less now than when he invested (Steve would rather not talk about it—it’s an embarrassing investment).

If Steve sold his second investment at a loss, tax rules say he gets a tax break on this loss. You combine your winnings and your losses to a net number, and you pay taxes on that net number. By selling his second investment (that was a bad idea anyway…), he reduces his overall tax bill on his capital gains.

See: Realized Gains; See: Wash Sale.