Q: Many of my stocks are down because of the recent stock market decline. I know you can write off investment losses, so is it a smart idea to sell some of my stocks before the end of the year?
While it's true that you can generally deduct investment losses to help reduce your capital gains or other taxable income, that doesn't mean that it's a smart idea to sell your losing stocks. There are a couple of things you need to consider.
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Most importantly, ask yourself why you're selling. Selling stocks simply because they went down in price is a bad reason. In fact, if nothing has changed with your investment thesis, a price drop should be looked at as a reason to buy, not sell.
There are certainly some good reasons to sell, such as if a company's market share is eroding, competitive advantages aren't there anymore, or if something else about your initial reasons for buying no longer applies. Market volatility can also create the need for portfolio rebalancing, which can be a good reason to unload some stocks.
Also, be aware that if you do sell, you can't repurchase that stock or a substantially identical investment within 30 days, or else you can't take a tax deduction for the loss. So don't plan on selling a stock before the end of the year and then buying it back shortly after New Year's Day.
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