Individuals who might benefit from this zero capital gains rate include retirees or folks who've reduced their work schedule as they near retirement, and young workers whose first full-time job doesn't pay much. If these individuals have investment earnings, they can sell them and not have to worry about offsetting gains by selling assets that will produce a loss.
Wash away those losers?
But what if the only deflated stocks in your portfolio have a lot of promise to rebound to profitable glory? You might think of selling something off to create a loss, and then repurchasing the stock so you can ride it back up.
Not so fast, bucko. The IRS is a step ahead. The tax folks closed up that loophole with something called the wash sale rule. The catch is you can't claim a loss from the sale of a security and then turn around and buy a substantially identical replacement within 30 days.
For example, if you sell a stock and then pick it up again a week later after it splits, the IRS knows it's still the same stock. So if you want the tax break, you have to take a risk and wait 31 days to pick up that stock or security again.
For a more subtle way to work within the wash sale rule, you could sell shares of one company's mutual fund and pick up the same type of fund from another company. For example, sell off the health care mutual fund from one company and then buy into the health care mutual fund from another. For bonds, be sure to buy a new one that differs from the old one in one or, even better, two of the following criteria: issuer, credit rating, maturity and yield.
Though capital losses can lessen the pain from a gain, they are not the way to wealth. Your ideal financial scenario would be for every stock to be a long-term winner. But for that, you need a crystal ball, not a tax form.