Let’s say some of your oil stocks have suffered from the current lull in oil prices, which has continued it’s roller coaster for the past 5 years. You know it’s almost guaranteed there will be a relatively big bump in the prices in near future, based on the half-decade pattern, and you don’t want to miss out on riding it out for those gains. (And those gains could at least double your money – see our article Oil Stocks – It’s that Time of the Year Again Folks). An easy way to get some money from those losses, through the capital loss tax deduction, while still staying in for the potential gains is selling before year end and immediately buying a similar oil stock.
The Wash Sale Rule prevents an investor from getting a capital loss tax deduction on a stock loss if you buy the same stock within 30 days of the sale. This Zach’s article provides more details on the rule. Good news for oil stock losses – there are so many oil companies out there that you can find an almost twin stock to any company you’re selling for the capital loss deduction. For only an illustrative example/not recommendation – say you’re selling $OAS and $DNR at a loss before year end for the deductions, the same day you can buy $CHK. That way you get the deduction and not miss out on any gains during the 30 day wash sale period. Just make sure the almost twin, replacement stock is in just as good of a position for gains as your original stock.
The Balance explains in this article that the Federal Tax Code allows for up to $3000 in capital losses as a tax deduction in 2019, and you can carry over any remaining losses for deduction in the following years. That $3000 deduction could amount to an extra $720 in your tax return for 2019 if you’re in the 24% bracket (and even more deductions in the following years if you have more than a $3000 loss).
