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Suppose I am long-term invested in some stocks or etfs.

Consider the following two situations:

1) stock market is high, my personal income from work is low. Is it a good idea to sell (part of) my stock, and buy it at (nearly) the same price? The idea is that the capital gains are realized at a convenient time so only little taxes are paid.

2) stock market is low (below buying price), personal income from work is high. Sell/rebuy (parts of) the stock to realize losses to lower tax burden from work income?

What are the risks?

Is there a way of "realizing" the gains and losses at a convenient time without actually selling/rebuying?

  • by "a convenient time", do you mean because you'd be in a lower income tax bracket than normal, or because your overall tax bill would be lower than normal? – Sneftel May 17 at 14:18
  • Capital gains are taxed at 25% in Germany when selling. If your overall income was low enough to be taxed at less than 25%, you get money back when filing taxes – Michael Feldmeier May 17 at 14:26
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    Related to part two of your question: In the US, there is a "wash-sale rule" that prevents you from gaining a tax advantage by selling (at a loss) and rebuying the same (or similar) stock within a short time. You should check to see if there is a similar tax rule in Germany. – Doug Deden May 17 at 14:30
  • @MichaelFeldmeier You mean tax withholding is 25% when selling. That is not tax at all, that is a forced deposit into your account with the taxing authority. The purpose of that account is to assure there's money back to pay your taxes at the end of the year when due. Any excess is yours; it was yours all along. – Harper May 17 at 19:42
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Tax loss harvesting is the selling a security that has experienced a loss in order to offset taxes on both gains and income. The sold security is replaced by a similar one, maintaining asset allocation and expected returns.

In the U.S. we have the Wash Sale rule which prevents us from realizing a loss and replacing it within 30 days before or after with the same security or a substantially identical security such as an option.

By the same token, one can harvest gains in low income years in order to pay a lower amount of taxes on the gain. There is no prohibition in the U.S. against doing this, ala the Wash Sale rule.

I have been doing this for years since my income is very variable.

The short answer is that you should determine the gains or losses on your positions, determine your tax status and then work the numbers to see if harvesting any gains or losses is worthwhile. And make sure to find out if you have any regulations similar to our Wash Sale rule.

  • thanks! Are there any risks in doing that? Obviously the price could fluctuate between selling and re-buying. – Michael Feldmeier May 20 at 16:57
  • That would be the primary risk unless you bought a similar but not substantially identical security (in the US). – Bob Baerker May 20 at 17:05
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Since you're asking for Germany, the answer is specific to Germany of course.

The 1st scenario only pays off if your personal tax rate on income is less than 25 %. In that case, in your tax declaration you have to apply that your personal tax rate is applied to your capital gains. If your personal tax rate is higher, German flat rate tax of 25 % should always be favoured. Than the timing of realising your gains might only depend on your yearly tax exemption amount of 801 €.

The 2nd scenario is a misjudgement! Capital losses can't be deducted from your labour income. They can only be deducted from other capital gains and even then these need to be "of the same kind". See German Einkommenssteuergesetz for details.

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