Our “Off The Wall” Blog
is now Monument #Unfiltered

Subscribe below to receive our unique, straight-forward, unfiltered wealth advice delivered straight to your inbox.

Can You Clean Up Your Holdings Without Wash Sales?

U.S. News and World Report Smarter Investor

Plan your tax plays carefully. 

With the recent precipitous decline in stock markets, many investors have found themselves holding a portfolio worth less than they originally paid to buy the shares.
Obviously, this is not a fun position to be in, but that doesn’t mean it can’t present an opportunity. There are, however, some important rules to understand if you’re going to maximize the outcome from an unrealized or “paper” loss in an investment.

What is the wash sale rule?

The wash sale rule is a rule in the tax code that postpones the tax benefit of a loss in an investment if you buy back the same investment within 30 days of selling it. This requires you to sell the new shares before you are able to take the tax write-off from the sale at a loss.

Costs and risks.

Commission and trading costs are the first and most obvious costs associated with selling shares that are below their acquisition cost basis. There would also be trading costs associated with repurchasing shares after the initial sale.

There are several options available to investors who wish to benefit from this kind of tax deduction. One approach would be to sell the shares at a loss and simply wait 31 days to buy them back. But it’s possible that if the stock rebounds, you could miss the upside. If you simply hold onto the stock, you have exposure for a rebound, but no tax deduction from the drop in price. Finally, if you sell the stock then buy it back immediately, you realize the loss but need to wait until you eventually sell it to get the tax deduction. A simple alternative to these choices would be to sell your shares in ABC Corp. and buy shares in its closest competitor, XYZ Corp. However, this is not exactly the same exposure, so it’s possible that ABC moves back up faster than XYZ. Then, of course, you also have incurred the costs associated with the trading.

An alternative approach.

If, instead of buying ABC Corp. or XYZ Corp., you were to use an index tracking the sector or industry as a whole, you’d have less concentration risk associated with the individual component companies. Talk to your advisor about how to integrate index-based strategies into your tax planning.

Tax-sensitive investors can take advantage of share-price declines and potentially enhance their effective after-tax returns through some careful pre-planning.

Bottom line.

Market declines of the speed and magnitude of the one we’ve had in the past several weeks are an unfortunate reality of investing in stocks. However, there are some smart strategies to be employed that can offer substantive benefits versus simply “holding on and hoping for the best.”

Timothy R. Lee, CFP®, is a managing director and cofounder of Monument Wealth Management in Alexandria, Va., a full-service investment and wealth management firm. Monument Wealth Management is backed by LPL Financial, an independent broker-dealer and Registered Investment Advisor, member FINRA/SIPC. Monument Wealth Management has been featured in several national media sources over the past several years. Follow Tim and Monument Wealth Management on their blog Off The Wall, on Twitter at @MonumentWealth, and on their Facebook page.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for individuals. To determine which investment is appropriate, please consult your financial advisor prior to investing. All indices are unmanaged and may not be invested in directly.

Read the article on U.S. News & World Report here! >>


Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.

A copy of Monument’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.monumentwealthmanagement.com/disclosures. Please Note: Monument does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Monument’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your Monument account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Monument accounts; and, (3) a description of each comparative benchmark/index is available upon request.

Please Remember: If you are a Monument client, please contact Monument, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Get Monument #Unfiltered: Our Free Private Wealth Newsletter

Our no B.S. wealth advice delivered 2x per month, max. Tuned specifically for busy, high-net-worth business professionals and investors who want straightforward advice without the fluff.