What is a Tax Swap?
Tax swaps are strategies that involve the sale and acquisition of two different but similar securities. A tax swap is usually conducted as a means of utilizing existing tax laws to realize a loss that can be applied to the overall tax obligation for a given tax period. As such, the tax swap is a legitimate means of managing taxes so that the individual or entity creates a smaller tax burden for the period. The process for creating a tax swap is relatively straightforward. First, the investor will identify a security within the current portfolio that has been in decline. This rate of decline must take the current market price for the security below the price originally paid by the investor. Second, the investor will identify a security current offered for sale. This new security must be similar to the security that will be sold, but cannot be different shares of the same security. The purchase price for the new security must be more than the sale price for the old security. By selling t
