tax-loss selling

Tax-Loss Selling

The act or practice of selling stock or other securities at a loss in order to offset gains from other investment or income. In the United States, one is able to reduce one's taxable income by the amount one has lost in investing. Therefore, it is common to sell securities that have declined anyway at the end of the year and thereby reduce one's tax liability.

tax-loss selling

The sale of securities that have declined in value in order to realize losses that may be used to reduce taxable income. Tax-loss selling occurs near the end of a calendar year so that the loss can be used in that tax year to offset ordinary income or gains on other security transactions. Thus, tax-loss selling occurs mainly among stock that has declined in price. Compare tax selling.
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It's also a good time to keep a careful eye out for indiscriminate tax-loss selling during times when volumes are low eI it can create some extra volatility.
We had a final run of tax-loss selling and then dealers swooped in seeing it was an artificial sell-off," said Bill O'Neill, a partner in the commodities investment firm LOGIC Advisors.
The $600 billion of automatic tax increases and spending cuts scheduled for the beginning of next year includes higher rates for capital gains, making tax-loss selling even more appealing than usual.
Another way to reduce taxes is to do some tax-loss selling to offset any potential capital gains.
Further, tax-loss selling is greater for investors who have realized gains during the year and when the overall market has risen during the about-to-end calendar year.
So, no guarantee, but with the market oversold on a technical basis, tax-loss selling season coming to an end, unusual amounts of cash on the sideline as potential fuel, the end of the election uncertainty and anticipation of the Fed switching back to a friendly bias, the market is probably entering a period where its upside potential will be greater than its downside risk.
Because of the unique market conditions over the past few months, the logic seems even more compelling this year that decisions on tax-loss selling should be made through the art of valuation rather than as a continuation of a seasonal practice.
We document a unique and significant relationship between excess returns and the potential for tax-loss selling and conclude that the November effect is explained by the tax-loss-selling hypothesis.
Even if the stock market broadens in the near future, the current stealth bear market at least presents myriad opportunities for tax-loss selling.
But, if the portfolio is behind where they expect it to be, they may want to take advantage of some tax-loss selling and explore other options for catching up.
In fact, the "January effect," whereby stocks tend to exhibit sharp price appreciation at the beginning of the year, is the result of indiscriminate year-end tax-loss selling.
TYT also contains tools to support tax planning, including a "What-If Wizard", which enables users to see a trade outcome beforehand to find opportunities for strategic tax-loss selling.