Stocks: making losing sales to offset capital gains tax liability.

H

Horatio

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As year end approaches I have some bills that I'll be paying with funds from profitable stock sales. As the sales are profitable I'll incur CGT, fair enough.

I have stocks in my portfolio that are in the red currently but I want to hold in the long term. I'm considering selling some of these at a loss to offset the capital gain and bring my tax liability for 2023 to zero. I'm also considering buying them back after a month so I keep my holding at around the same level. It is understood the price will change in the interim.

Anyone else practicing this? Any reservations or pitfalls? Thanks for any insights on such a practice.
 
I think it depends on your overall holding.

Case 1
If you have no other shares with unrealised gains in them, then it is a good idea.

CGT gains this year: €30k - CGT due €10k
Other holding: Share A: Unrealised loss: €30k
No other shares.

If Share A recovers, you will "use up" the loss and so won't waste it.
If Share A does not recover and you eventually sell it at a loss, you will waste the loss.

So sell Share A now and set the loss against your Capital Gains.


Case 2
If you have other shares with unrealised gains in them, then your capital losses probably won't go to waste and the sale and repurchase is not necessary.

CGT gains this year: €30k - CGT due €10k
Other holdings:
Share A: Unrealised loss: €30k
Share B: Unrealised gain: €40k

Your unrealised loss probably won't go to waste. When you eventually sell Share B, you can set the loss on A against it, if A has not recovered.

So, it's probably not worth the costs of selling and rebuying.

Case 3 - if you still own the shares when you die
CGT gains this year: €30k - CGT due €10k
Other holdings:
Share A: Unrealised loss: €30k
Share B: Unrealised gain: €40k

If you kick the bucket in 2024 and this is still your portfolio, the CGT liability on Share B will disappear. So you will be wasting your losses on Share A.

So if you are elderly or terminally ill, then sell and use up the losses.
 
Thanks for the time & effort to model this up Brendan!

Case 2 is closest to my scenario. My scenario looks something like this:

CGT gains this year: €30k - CGT due €10k
Other holdings:
Share A: Unrealised loss: €30k. I sell just enough to realise a loss of €10k to offset my CGT liability to zero
Share B: Unrealised gain: €40k

I have many other share in my portfolio with unrealised gains & unrealised losses in them.
 
Horatio said:
I have many other share in my portfolio with unrealised gains & unrealised losses in them.
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If your gains well exceed your losses, then I wouldn't bother selling and rebuying. You won't be wasting your losses unless you die.

Brendan
 
Horatio said:
Anyone else practicing this? Any reservations or pitfalls? Thanks for any insights on such a practice.
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Yes I have done this, however usually what happens is that stocks that have been doing badly beforehand sell off even more now as many people do the same thing, its called tax loss harvesting, then towards the end of december (unless its a bear market) those stocks will rise alot as those people buy back in again. Sometimes its not a stock specific issue but sectoral so a way around this is to sell your stock and immediately buy another similar stock also suffering from sector wide woes. for example bank of Ireland and AIB you sell BOI and buy AIB, of course this is not exact as company specific factors outweigh the overall sector
 
joe sod said:
sell off even more now as many people do the same thing,
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Really?

Unless it's a very illiquid stock, I can't imagine that private investors selling to realise CGT losses would impact the share price much.

But if BoI and AIB are suffering from sector wide woes, surely investors in AIB will also be selling so would be suffering from the same alleged effect.

If AIB were doing well and BoI were suffering, it might make sense to sell BoI and buy AIB. But I doubt it.

Brendan
 
Brendan Burgess said:
Really?

Unless it's a very illiquid stock, I can't imagine that private investors selling to realise CGT losses would impact the share price much.

But if BoI and AIB are suffering from sector wide woes, surely investors in AIB will also be selling so would be suffering from the same alleged effect.

If AIB were doing well and BoI were suffering, it might make sense to sell BoI and buy AIB. But I doubt it.

Brendan
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It applies more to the huge stocks that sell internationally, for example energy like it was 3 years ago could be in a massive recession therefore all energy stocks are suffering, therefore you sell one energy stock and buy another one, but the tax issue doesn't over ride the sectoral issue. As regards AIB and BOI I would say the sectoral issues effecting the banking sector overall and obviously the financial crash and heavy government involvement subsequently had alot bigger effect than the individual bank factors. If BOI is falling alot so is AIB and vica versa, its rarely the case that BOI is flying high and AIB is tanking, they normally move in step

Maybe it is just best to sell your BOI wait a month and then buy back BOI, probably less risky except if BOI release wonderfull results in the meantime
 
Horatio said:
Any reservations or pitfalls?
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Another consideration.

I try to have a balanced portfolio of shares.
But when one does very well, the portfolio becomes less balanced.
When I need money, I sell some of the holding in the best performer to rebalance my portfolio a bit.
But of course, that leads to a CGT liability.

If I sell some of my shares with an unrealised loss, then I am unbalancing it again.

But I suppose I can fix that by rebuying those stocks.

Brendan
 
joe sod said:
Yes I have done this, however usually what happens is that stocks that have been doing badly beforehand sell off even more now as many people do the same thing, its called tax loss harvesting, then towards the end of december (unless its a bear market) those stocks will rise alot as those people buy back in again. Sometimes its not a stock specific issue but sectoral so a way around this is to sell your stock and immediately buy another similar stock also suffering from sector wide woes. for example bank of Ireland and AIB you sell BOI and buy AIB, of course this is not exact as company specific factors outweigh the overall sector
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I like that thinking. Cheers.
 
Horatio said:
No that’s not what I meant. Which makes me think I am missing a trick here.

I think I may have written it incorrectly above.

Take 2…
Realized gains this year: €30k.
Therefore CGT due €10k.

Share A: Unrealised loss: €30k. I sell just enough to realise an actual loss of €10k to offset my CGT liability to zero.

Right? Or?
Click to expand...
Penny just dropped. You’re right.
 
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