Do you sell your brokerage funds and stocks that are in the red to reduce your tax bill at the end of the year?

This is only a thing for standard brokerage accounts and not retirement accounts like 401k. I don’t know many people who have standard brokerage accounts on top of their regular retirement accounts. Since you brought it up, yes this is one way wealthy people reduce their tax burden.

^^Understood. I was not talking about retirement accounts, but it’s good you mentioned it to clarify.

On one hand you would be doing the opposite of: buy low, sell high. On the other hand you would be able to offset capital gains with those capital losses. There is also the chance of the stock/mutual fund popping upwards, and you would have lost an opportunity.

The problem is that it doesn’t really work that way. You can’t sell on December 20 and buy back on January 10 because of the Wash Sale Rule.

The wash-sale rule is an IRS regulation that prohibits investors from using a capital loss for tax-loss harvesting if the identical security, a “substantially identical” security, or an option on such a security has been purchased within 60 days of the sale that generated the capital loss (30 days before and 30 days after the sale).

It’s only a small window for the wash sale rule. Wait 31 days then buy back with impunity. It’s vague so investors can do things like liquidate stocks and buy mutual funds with similar holdings. Tax time is also time for people to clear out all the stinkers in their portfolio that they don’t plan to buy back.

if you’re smart you sell in December. You will most likely sell at the lowest point & lose money. That’s a tax write off. Then approx 31 days later you buy them again assuming the price will still be down some. So you can buy them back at a slightly higher price & hope they go up during the year. If you have a good broker, you can do it several times during the year as well. That way your losses will offset any profits you make during the year!!!

I have not nor do I use that as a strategy.

I do it occasionally to offset gains that might push me over a certain threshold.