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Tax Planning

Capital Gains and Losses

To adequately plan for the tax impact of your investments, you need to understand how capital gains and losses and dividends are taxed. Figuring out the taxes on mutual funds outside of retirement plans can be tricky. And you should be aware of certain deductible investment expenses, which can reduce the amount of tax you need to pay.

When you have an active portfolio of investments outside a tax-deferred retirement account, consider some of the following planning tips to minimize the amount of income tax you will pay on capital gains generated during the year. Keep in mind that you should not base a buy or sell investment decision solely on tax minimization; make sure it makes economic sense and is part of your overall investing strategy.

If you have recognized short-term capital gains and you were considering selling an asset that will generate a capital loss, you can use the loss to offset the gain by selling the asset. This can eliminate the short-term capital gain that would have been subject to tax at ordinary rates.

If you have a capital loss or a capital loss carryforward and you were considering selling an asset that will generate a short-term capital gain, you can use the loss to offset the gain by selling the asset. This may eliminate the short-term gain that would have been subject to tax at ordinary rates. Keep in mind the capital gains tax rates and the related holding periods when doing your tax planning.

Capital gains are defined as an increase in value of a capital asset, such as an investment or real estate, resulting in being valued at higher than the price at which it was purchased. The gain is realized when the asset is sold, and it must be claimed on income taxes. Conversely, a capital loss occurs when a capital asset's value decreases to below its purchase price.

Loss carryforward is an accounting technique that applies the losses from one year to the profits for one of the seven following years to reduce tax liability.

What Happens if I Sell an Investment at a Loss?

As mentioned above, if you've sold investments, some at capital gains and some at capital losses, you can offset them against each other. But if you end up with a net realized capital loss, you can only deduct up to $3,000 on your tax return against other taxable income, including salaries, interest, and dividends. If there's any left over (loss carryforward), you can carry it forward to future years until you use it all up. You're allowed to deduct up to $3,000 of realized losses per year even if you don't have any realized capital gains in that year.


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Investment and insurance products and services are offered through INFINEX INVESTMENTS, INC. Member FINRA/SIPC. BancorpSouth Wealth Management is a trade name of BancorpSouth Bank, a division of Cadence Bank. Infinex and the bank are not affiliated. Products and services made available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value.


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