Harvesting Capital Losses: Act Quickly on Shorts!

One of the common techniques at year-end to reduce taxes is to harvest capital losses. Let’s say you own 100 share of some stock that hasn’t done well. If you sell it on or before December 31st, you can use the capital loss to offset capital gains (and take up to $3,000 of capital gains in excess of losses). You do have to remember not to repurchase the stock until the 31st day after the sale (including in any other brokerage account, even an IRA).

But what about a short position? You short a stock by selling the stock at first, and then you buy to cover the short. Where a normal stock sale is considered to occur on the date of sale, a short sale is considered to be consummated on the settlement date. The settlement date is typically three days after the trade date.

What this means is that if you’re going to harvest capital loss(es) with short sales you likely need to act on Monday, December 28th. (Your broker should be able to confirm how long it will take for a trade to settle.) If you wait on your short position until Tuesday the 29th, you may be too late for that sale to have occurred in 2015.

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