2

Say I have a stock position that is currently significantly underwater. At this point, I'd like to give up on the stock and sell it. I realize that the resulting capital loss would be deductible on my income taxes (up to $3,000 per year). However, due to my tax situation, I would like to defer booking the loss until 2020.

If I sell the stock now, am I required to claim (at least the first $3,000 of) the capital loss on my 2019 return, or can I carry over the entire loss to a future year? If I could defer it, then I might sell the stock now (to avoid it going down further).

4

You should be able to use the wash-sale rule against the IRS here: you sell the stock, and buy it back within 30 days. Then you sell it again in January, and that will make the loss applicable to Tax year 2020, and you have the risk only for some days.

You can also repeat that every 29 days, and only keep it for five minutes each time, that has nearly no risk, and you only need two iterations to get into 2020.

  • There is a big risk. You could be riding the the stock even lower. They want to stop owning the stock, This plan will mean they continue to own it for two more months. – mhoran_psprep Nov 6 at 11:08
  • 2
    @mhoran_psprep: I think what this answer proposes is that I sell the stock now, then in 29 days, I rebuy it (triggering the wash-sale rule, meaning I can't claim the loss). I could then sell it again immediately. I would then wait another 29 days, which would take us into 2020, when I could rebuy the stock (again triggering the wash-sale rule, so the previous loss still isn't deductible), then immediately sell it again (which would lock in the loss in 2020). The total cost of this plan would be 2 bid-ask spreads, which should be cheaper than an option-based approach (the spreads are tight). – Jason R Nov 6 at 13:25
  • Exactly, @JasonR , that's what I meant. It's not free nor perfect, but it works. – Aganju Nov 6 at 13:47
  • I thought this might work but wasn't confident enough to make it an answer. Nicely done looking into this. – Vality Nov 6 at 17:57
2

I'm not a tax specialist but have been in the industry for 20 years. It's a taxable event in the tax year of the sale. So if you sell it in 2019 you have to claim it on your 2019 taxes. The only portion that can be carried into 2020(or beyond) is losses in excess of 3k.

Only idea I have is to look at an option strategy that expires in 2020. You might structure a multi-leg option strategy to allow you to capture the loss in 2020. I'd seriously consider whether such an approach is worth the trouble, the premiums or the uncertainty.

Given the complexity of our tax code, see a specialist to see if there's any creative ways to defer.

  • 1
    The easiest way to lock in the loss and defer it until next year would be to buy a very high delta put that expires in January (assuming the stock has options). The cost would be the time premium which would be relatively low if the implied volatility is reasonable. A no cost option collar might work if the stock cooperated but that's not a guarantee should share price recover sharply above the upper strike price. – Bob Baerker Nov 5 at 22:28
  • Im not sure if this would work... But could the OP use the wash sale rule to sell the position and rebuy it for a few seconds every 30 days until years end? – Vality Nov 6 at 0:59
  • You're not sure what would work? As for your suggestion, the moment the OP sells the stock, the capital loss is realized. What would be the point of rebuying it for a few seconds every 30 days? – Bob Baerker Nov 6 at 3:16
  • 1
    @BobBaerker The wash sale rule states that if the stock is sold for a loss and re-bought within 30 days the loss is a wash and is carried forward into the new position. It would seem the OP could delay realising the loss indefinitely by rebuying the same number of shares and selling them a fraction of a second later, repeating this process every 30 days to cause repeated wash sales, carrying the loss forward into each new position using the wash rule for the entire year. Then finally letting the 30 days expire to realise the loss with the final sale. – Vality Nov 6 at 17:53
  • 1
    @Vaility - Thanks for the clarification. I didn't grasp that the few second holding period was at the 30 day mark in order to create the ongoing wash sale violation. The risk would be carrying the stock from last trading day of 2019 to first trading day of 2020. – Bob Baerker Nov 6 at 18:44
1

There is no way to realize the loss this year and defer it until next year.

There are some ways to use options to lock in the position until 2020, limiting losses but viability depends on the stock having options as well as the implied volatility of the options and the availability of strike prices.

  • The OP said they made a capital loss, not a gain. ( I know this doesnt change the fundamentals but thought it might be worth mentioning) – Vality Nov 6 at 0:57
  • 1
    I'm fluent in typoese. Thanks for catching that. – Bob Baerker Nov 6 at 1:04

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.