Sell stock to capture valuable losses

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in Small Business Tax

Q: In 2002, I bought stock in a company that just recently merged with another company. I bought the shares at $15; now they're worth only $12 and change. Can I deduct a loss for 2005? L.A.R., San Diego

A: Yes, but you have to sell the shares to realize the loss. If the stock is worth, say, $12 when you sell it and you own 1,000 shares, your loss is $3,000 (1,000 shares times $3). That happens to be the annual amount of losses you can use to offset highly taxed ordinary income. So, if you have no other gains or losses this year, your $3,000 loss can provide the maximum tax benefit for 2005.

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