Client FAQ: Can I convert stock with paper losses into tax benefits?
Q. A promising investment opportunity proved too good to be true and I have incurred some stock losses. I still have faith in the company and don’t want to abandon it but can I use some of these losses to offset gains from other stocks? If I sell these shares at a loss and immediately buy them back, what would the tax consequences be? A. The IRS calls these transactions “wash sales.” Very simply, a wash sale takes place when a person sells stocks or bonds at loss and buys substantially similar stocks or bonds within 30 days. The wash sale rules are intended to curb this practice, which the IRS views as done only for tax reasons. Here’s an example: Donna invested part of her inheritance in an airline company. Donna purchased 3,000 shares of the airline’s stock. Two years later, the airline is teetering on bankruptcy. Donna sells 1,000 shares at a loss of $2,000. Less than one month later, Donna buys another 1,000 shares of the same company’s stock for $5,000. Instead of allowing the ded
