A Pro's Take On Tax-Loss Harvesting, How It's Done

Investors have until Monday to sell stocks at a loss to help lower their tax burden. The process is known as tax-loss harvesting and has a combination of positives and negatives that investors should be aware of before taking action, according to Kevin Barry of CAPTRUST.

What Happened

Selling a stock at a loss allows investors to shelter gains that were realized earlier in 2018 or use it to shelter anticipated gains in 2019, Barry said during a Friday CNBC interview. Investors can take advantage of tax-loss harvesting on a stock whether they are down 3 percent or 30 percent. The only criteria to keep in mind is investors need to wait at least 31 days before re-investing in the particular stock.

Investors selling, for example, an energy stock are permitted to immediately purchase an energy-related exchanged traded fund to maintain broad exposure.

Why It's Important

Tax-related decisions shouldn't be the top criteria in making investment decisions, Barry said. The top priority for investors is to maximize total return instead, not minimizing a tax burden, he said.

Not all experts agree. Jeff Fishman, founder of JSF Financial, told Forbes "people need tax losses" and it is wise to "take advantages of the recent downturn in the market."

Investors should also keep in mind that a tax loss only occurs when the selling price for a stock takes place at a price below the buying price. For example, consider shares of Facebook, Inc. FB, which are not far removed from their 2018 low of $123.02.

Investors who bought the stock north of $200 per share in 2018 are sitting on a loss, but investors who bought Facebook stock below $100 per share in 2015 are sitting on a gain — albeit a much smaller one than earlier in the year. 

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