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Upon the advice of a financial planner at a large financial management firm, a friend bought an individual stock, Apache, as part of their portfolio.

That stock has since lost over 50% of its value.

The financial planner was promoted within the firm, and moved.

The new financial planner (same firm) is strongly recommending selling that stock to "capture the loss". He claims that capturing such a loss is a unique opportunity since the tax benefits of the loss can be used anytime.

My friend has no urgent needs for a tax writeoff at this time, but could use the writeoff to accelerate the rate of converting a traditional IRA to a Roth IRA (note: my friend is young enough to not be in a rush to finish that process).

My friend has asked for my advice, and I'm am not sure, so I am turning to everyone here for advice.

Here's how I see it: If my friend wants to sell the stock because he wants to sell it, then by all means, sell it. If he wants to keep it, then keep it (or buy more). But I see no special or unique "opportunity" in selling it for a loss.

I hate to be a skeptic, but here's what I'm concerned is happening: The previous financial planner recommended a stock that lost much of its value. He probably should not have even been recommending such a large investment in an individual stock. The new planner wants this stock out of the portfolio because even if it doubles, it will not show as a profitable investment. If he gets my friend to sell that stock (and invest in something else), the new planner can take the credit for creating what looks like profit and hope that my friend forgets about the previous loss that negated that illusory profit. I'm concerned that the financial planner is trying to paint lipstick on a pig (the pig being the previous advice of his firm).

What do you think? Is there something special about capturing a large loss, or is this new financial planner trying to play games to make his firm and his tenure appear more positive?

  • (Assuming US) 'anytime' is an exaggeration. First 3k of net capital loss must be taken against this year's ordinary income and the remainder carried forward to next year, where it is taken against any capital gain that year otherwise 3k against ordinary income and any remainder to the following year and so on. You can mostly control when you sell an appreciated holding and realize gain, but whenever you do you must apply any existing carryforward. And if you hold mutual funds that make gains, those must be distributed (at least) yearly and you don't control that timing. ... – dave_thompson_085 Dec 12 '15 at 14:51
  • ... But as @JoeTaxpayer said, the investment should almost always be more important than the tax, especially when it only shifts the timing of tax and rarely the amount significantly. – dave_thompson_085 Dec 12 '15 at 14:54
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I agree, one should not let the tax tail wag the investing dog.

The only question should be whether he'd buy the stock at today's price. If he wishes to own it long term, he keeps it. To take the loss this year, he'd have to sell soon, and can't buy it back for 30 days. If, for whatever reason, the stock comes back a bit, he's going to buy in higher.

To be clear, the story changes for ETFs or mutual funds. You can buy a fund to replace one you're selling, capture the loss, and easily not run afoul of wash sale rules.

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