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I have a long term stock gain of $13,000 for 2011 and currently

a $6,000 7-month short term...
I have a long term stock gain of $13,000 for 2011 and currently a $6,000 7-month short term potential loss on stocks I still hold. Assuming the stocks that are at a loss remain at a $6,000 loss in 2012, would I have a better tax advantage if I sell in 2011 or wait to sell in 2012 as a short or long term loss. Assume a 30% federal and 9% state tax rate for each year.
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Answered in 2 minutes by:
12/1/2011
Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1,408
Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
Verified

Jax Tax : Since capital loss cannot be carried backward, you would be best off selling in 2011 to offset the capital gain.
Customer:

I would appreciate the math so I can fully understand what my actual out of pocket loss would be in each case. For example, my current understanding is that if I sell the losses in 2011, my actual out of pocket loss is about $6,000 less 15% tax rate. I had a thought that if I sold in 2012, maybe my out of pocket loss would be $3000 less 40%, or about $1800 and $1800 again in 2013. So, the $6000 out of pocket loss is only $3600. I am not sure of my thinking.

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William Ellis, CPA
Category: Tax
Satisfied Customers: 296
Experience: Over 15 years of experience in public accounting
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Good morning. Go ahead and accept Jax Tax's answer. If you sell the stock for the $6,000 loss, you will end up with a net long-term gain of $7,000. The gain by itself is subject to no more than $1,050 in tax (at 15%). Per your numbers, you are looking at $2,100 federal and $610 California. If you do not claim the loss, your tax on the $13,000 would be $1,950 at 15%, $3,900 at 30% federal and $1,170 for California.

Then, you would be able to claim $3,000 of the loss in 2012 and 2013. The amounts for each year would be $900 federal and $270 California. You are much better off savings taxes this year. Much better. Thanks, Bill.
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Customer reply replied 5 years ago

thanks for taking the time to display the math. I am so sorry I am confused. It sounds like I have to pay 15% + my regular federal and state tax rate on top of that, no matter what I do?...in one case paying all that on $13,000 and in the other case paying it on $7,000. I thought the 15% was instead of my regular 30% federal tax rate, not in addition to it. Which is it? It also sounded like if I sell my stocks for a loss of $6,000 this year, I will also be able to claim them as a tax loss in 2012 and 2013.

Maybe I didn't explain myself. My botXXXXX XXXXXne is trying to figure out which way to go to minimize my $6,000 loss so that uncle sam can give me credit. Which way is my $6,000 loss minimized the most and what are the two comparison dollar tax credit numbers (sell the stock this year or 2012)?

Customer reply replied 5 years ago
Relist: Incomplete answer.
I replied to the previous expert and apparently my request is no closed but I did not get a satisfactory answer I don't actuually understand what is going on I just would like to get a simple answer.. Two sentences with a dollar amount in each sentence
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,131
Experience: Taxes, Immigration, Labor Relations
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Hi and welcome to Just Answer!
Long term capital gains are taxed at reduced federal tax rate 15% plus 9% for state income tax.
If you recognize short capital loss $6000 in 2011 - it will be fully used to offset your long term capital gain - so you will have net long term capital gain of $7,000 for 2011 - and your estimated tax liability would be $7,000*24%=$1680.

If you will recognize short capital loss $6000 in 2012 - long term capital gain of $13,000 for 2011 will be taxed - so your estimated tax liability would be $13,000*24%=$3120.
Assuming you will not have any capital gain in 2012 and in 2013 and - you will use $3000 in 2012 and $3000 in 2013 to offset other taxable income - so your potential income saving in each of these years would be $3000 * 39% (30% federal and 9% state tax rate) = $1170.
So your total estimated taxes for 2011- 2013 would be $3120 - $1170 - $1170 = $780.

Total tax saving if you postpone recognition of the short term capital loss $6000 to 2012 would be $1680 - $780 = $900.
That makes a perfect sense to have $6,000 loss in 2012.
Let me know if you need any clarification.
Lev
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