Tax time is approaching. How Lossy Stocks Offset Capital Gains.


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The harvest usually speeds up in the fourth quarter.

The time of dreams

Taxes don’t really have a season on Wall Street, and a slew of stocks that have been on the losing side will be sold by the end of the year to lower IRS bills.

This is called tax loss selling, or “harvesting,” and here’s how it works: A portfolio manager sells an investment at a loss to offset gains from other assets. A stock sold for a gain is taxed, but a stock sold at a loss is not, so incurring losses is how the portfolio manager reduces the overall amount of gains and reduces the portfolio’s tax bill.

Now tax loss selling is a here and now issue, no way to avoid higher capital gains taxes in the future. Investors, however, are staying tuned to what’s going on in Washington. The White House wants to increase the capital gains tax to 39.6% from 20% for gains over $ 1 million per year. Policy makers point out that a higher rate usually does not significantly affect markets one way or the other.

Many stocks could be oversold as a result of the tax loss selling, which is a good thing for investors. “We see buying opportunities as some tend to sell stocks at attractive prices towards the end of the year,” said Dave Wagner, portfolio manager and analyst at Aptus Capital Advisors. that of Barron.

Harvesting usually takes place in the fourth quarter, as the end of the tax year approaches. And October is traditionally filled with sales, perhaps because the month marks the start of the quarter.

Over the past 20 years, stocks most vulnerable to tax-loss selling performed roughly in line with the stock market as a whole in the fourth quarter, but gained 1.3 percentage points below the S&P 1,500 in October, a

Morgan stanley

the display shows. The S&P 1,500, with a total market cap greater than that of the S&P 500, is the measure because it represents all large, mid and small cap companies in the United States.

Morgan Stanley identified tax-losing sell stocks as the S&P 1,500 which fell 10% to 25% from mid-January to September. Those who lost more than 25% were not included because they will likely be bought up by investors looking for cheap names, the bank said.

The list includes dozens of stocks in 17 sub-industry groups, from software services to manufacturing, consumer goods and services.

The bottom five all fell more than 23%. Here are their numbers: Matrix Service Company (MTRX), an engineering and construction services provider, 24.5%; Strategic Education (STRA), an educational services company, 24.2%; Bel Fuse Inc. Class B (BELFB), a manufacturer of electronic circuit products, 24.1%; Pacira Biosciences (PCRX), a manufacturer of pain management products, 24%; and SailPoint Technologies (SAIL), a provider of corporate identity governance solutions, 23.9%.

September and October have already been tough months for stocks. This is another challenge for the market.

Write to Jacob Sonenshine at [email protected]


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