Any good strategies for maximizing capital loss carryovers?

Personal finance, Value investing

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Many people who invested in the late ’90s incurred capital loss carryovers that can be used against future capital gains and deducted from taxes in future years. Being one of these people, I was curious as to whether there were any ways to maximize the use of these carryovers. I’ve been thinking of these carryovers as a personal, rather than a corporate, , though that may not be strictly correct. Short-term capital losses can only be netted against short-term gains, and long-term losses against long-term gains. In my case, I have more of the latter than the former.

Since I’ve started investing seriously and decided to focus on long-term results, I’m considering doing the following:

  1. Purchasing shares of an ETF or index fund, and holding them for at least 12 months so I can net long-term gains against the long-term loss carryovers.
  2. Once the 12 months or more are up and I’m able to realize a gain, selling part of those shares to net against my long-term capital loss carryovers.
  3. Then, rebuying those previously sold shares later when the price has fallen a bit. In this way, I could realize the gain without incurring taxes, and possibly also take advantage of a price drop as well.
  4. Repeat the process, until capital loss carryovers have been used up

The problem I see with this is that it’s always easier said than done. When the time comes to sell, will I actually be able to do it, or be paralyzed in the moment that it’s the wrong time to sell? And of course, there’s never any guarantee that once you sell, there will be a price drop and an opportunity to re-buy.

I also haven’t given much thought as to whether it’s better to use up all my carryovers as soon as possible (due to the time value of money), or reserving some for later in case my tax bracket changes later in life, since, unless the current law changes, capital losses can be carried over for use indefinitely until they’re used up.

So, anyone else have any good strateges or recommendations for maximizing capital loss carryovers?

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» Carnival of Investing #25 » Consumerism Commentary: A Blog About Personal Finance

[…] That’s less tax, Marv. Experiments in Finance wants to know if anyone knows any good strategies for maximizing capital loss carryovers. He’s looking for suggestions. […]



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