Should I realize short term gains to make use of short term losses or offset against long term gains?

Question

Similar to this question, but I’m trying to understand the strategic value of using ST losses.

I currently have -$20k in ST losses and +$100k in LT gains. Per my math, if I use it against +$20k in ST gains, I save $10k in taxes (50% marginal rate including state taxes), but if I offset against the LT gains, I only save about $6.7k (33% rate including state taxes).

Does that strategy sound right? Is it better to capture +$20k in ST gains to maximize the value of the ST loss or am I missing something?

In response to the comment - Some I will hold until LT/forever, but others are mixed — Ideally I’d like to hold till LT, but they are also volatile growth stocks that are up quite a bit, so who knows if the gains will last till they become LT. I wouldn’t mind selling some and moving to something like VOO if the ST offset strategy is the right one.

Answer 1

The capital gains rules dictate that short term losses offset short term gains, long term losses offset long term gains then the net remaining of either can offset either; you don’t get to choose what your short term gain offsets, it will offset short term gains first (which is the most advantageous anyway because of preferential long term cap gains tax rates)

Your primary goal of investing is returns not taxes. If you think it would be wise to sell some investment to capture a short term gain, then do it.

You may have an opportunity to sell your investment at a gain tax free, then immediately rebuy to step up your basis because wash sale rules only apply to losses.

But you already have realized gains in excess of your losses so I wouldn’t realize more gains just to change some marginal tax consequence.

Answer 2

If you have unrealized gains in something you don't want to hold long term and you want to sell it anyway, sell it and use the loss to offset the tax hit.

If everything you currently hold is something you intend to continue holding, then use this opportunity to sell highly appreciated assets and repurchase them at their current price to reset the cost basis, reducing the potential taxable gains later (tax gain harvesting).

The only consideration regarding short-vs-long that you need to worry in either case about is how the loss offsets the gains - a short-term loss first offsets the short-term gains, then any left offsets long-term.

Also make sure that you do not purchase any "substantially identical" securities to what you are selling at a loss within a period of 30 days before or after the sale, or it will count as a wash sale and the loss will not be deductible.