Tax Selling

DEFINITION of 'Tax Selling'

A type of sale whereby an investor sells an asset with a capital loss in order to lower or eliminate the capital gain realized by other investments. Tax selling allows the investor to avoid paying capital gains tax on recently sold or appreciated assets.

BREAKING DOWN 'Tax Selling'

When participating in tax selling, an investor must not execute a wash sale. Wash sales occur when an investor sells an asset through a broker in order to realize a loss, but simultaneously repurchases the same asset from another broker. This strategy allows the investor to maintain his or her position while incurring a capital loss. Wash sales are illegal, whereas tax selling is allowable.

Tax selling often occurs in December, as investors try to realize capital losses for the upcoming income tax season. If investors would like to repurchase the shares sold for a loss, they can do so after the 30-day wash sale rule no longer applies. In addition, shares sold for a loss must have been in the investor's possession for more than 30 days.

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