Selling investments that are currently worth less than what you paid for them and are held in taxable brokerage accounts may allow you to lower your 2016 tax bill. Why? Because you can offset the resulting capital losses against capital gains from earlier in the year.
If your losses exceed gains, you’ll have a net capital loss for the year. You can deduct up to $3,000 of net capital loss (or $1,500 if you are married and file separately) on this year’s return against ordinary income from salary, self-employment activities, alimony, interest, and other types of income. Any excess net capital loss is carried forward to future years and puts you in position for tax savings in 2017 and beyond.
However, be aware of the wash-sale rules, which preclude the deductibility of losses in certain situations. If, for example, you sold a security the last week of December for a loss and then bought it back the first week of January next year, you wouldn’t be able to use the loss to offset your 2016 gains.