Finance: What is tax loss selling?

What is tax loss selling? Hit play to find out.

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Transcript

00:30

it's making you really nervous as you know that Dell if they don't have an [Company earnings graph appears]

00:34

awesome earnings every quarter the stock will get cut in half or worse so you

00:38

have a thousand shares of chap my hide a company that sells leather scented

00:43

chapstick the stock is now at 80 bucks 80 grand worth which you bought three

00:47

years ago for ten grand or ten bucks a share huge $70,000 gain nice work but

00:55

you know that if you sell it since you live in a high tax blue state you'll pay [California highlighted blue]

00:59

dearly about 35% tax on that gain or almost 25 grand in taxes leaving you

01:06

just fifty five thousand dollars in cash after the sale well luckily you

01:10

carefully watched this video and you know about tax law selling in this case [Tax loss selling video appears]

01:15

well you have one big fat pig there to draw from ok another stock yeah a

01:21

totally different outcome the pig you paid 50 grand for scratch-and-sniff [Scratch and Sniff diapers appear on the shelf]

01:24

diapers when you bought your 2000 shares at 25 bucks each two years ago fifty

01:30

grand and now after SSD shockingly missed [Actual earnings appear on company graph]

01:34

three-quarters earnings estimates in a row while the stocks down to three bucks

01:38

a share basically just the two dollars of cash per share the company holds plus

01:42

$1.00 to value everything else the company has had to abandon its plans to [Person scratches sock]

01:46

expand into scratch-and-sniff dress socks so well this is a big blow but for

01:51

some reason you still believe in the company and want to buy the stock back

01:55

someday you have way more than a month before this pig heals itself if it ever

02:00

in fact does and if you bought it back sooner than a month after you sold it [Man scribbles bought back into calendar date]

02:04

well then you wouldn't get credit for that tax law sale because you would have

02:09

violated the wash sale rule which says that you can [Wash sale rule appears]

02:13

sell a stock and then buy it back within 30 days claiming it as a loss with the

02:18

IRS to then pay lower taxes so you've lost hope you're ready to take your

02:22

losses in lumps and just sell it and that's usually a good thing to do here

02:27

with tax loss selling you just sell your shares for 3 bucks each booking a loss

02:31

of 22 dollars a share times 2,000 shares or 44 thousand dollars in losses [Tax loss selling equation appears]

02:37

well that 44k directly offsets the gains that you realized with chap my

02:42

hide so from the IRS perspective you won't pay taxes on the 70 grand of gains

02:48

you made from the sale of CMH you'll subtract the 44 grand of pig losses from [Tax loss selling formula appears]

02:54

that 70 grand of gains and pay long-term gain taxes on the realized gains of 70

02:59

minus 44 or $26,000 your blue state 35% tax still applies but now it's on a much

03:07

smaller base as you multiply 0.35 times 26,000 and you'll get about 9 grand in

03:12

taxes much easier to digest than the 25 grand you are gonna have to pay

03:17

otherwise so yeah that's what happens when you've got a pig that's a badly in [A pig rolling in the mud]

03:22

need of a wash