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To offset big gain years, I usually have some speculative stocks that haven’t done as well as I hoped that they would, and so this is the time that I like to sell them. I use to procrastinate and sell these dog stocks closer to year-end (check out: Time To Sell Year End Capital Losses?), but this just create stress and increases the likely hood that I’ll forget about them in the marathon of the Christmas and New Year’s season rush.

The taking stock losses tax rule is you can declare the loss on your tax for up to $3,000 over any recognized gain offset that you might have. So for example, if you had a huge gain in one stock and you sold it netting $12,000 in capital gain, but you also had a recognized losses in other stocks where you lost a total of $16,000, you can only claim $15,000 in losses on your income tax form this year. That said, you can carry the left over $1,000 forward and take the loss against the current or future year(s’) income taxes.

From a personal perspective, I use to be embarrassed about selling my stock losses, and so I would hold onto them for years hoping they might come back. And there is a small chance that they might, you never know… Now I look forward to dropping these dogs. I now view it as I played the market and these are the games that I lost. In fact in some ways I’m very happy to get rid of these stocks now, and actually I now have less and less losers every year.

Another nice perk about selling losses is that you get to start the new year with a clean slate. Consider the loss a learning experience and move one. Over time hopefully you ability to pick more winning stocks will surface. If not, then go with mutual funds or ETFs.

Want to read more? Check out the article at Retire By 40‘s site called: Sell Your Losers Before 2011 Ends! It good to see others do similar strategies as I do!

Bests, and here’s a toast to a great 2012 stock market year (at least I hope),

MR