SOURCE: Brinton Eaton Wealth Advisors

October 17, 2007 12:49 ET

This Year's Volatile Market Offers a Golden Opportunity to "Harvest" Tax Losses, Brinton Eaton Says

MORRISTOWN, NJ--(Marketwire - October 17, 2007) - This year's volatile market offers a golden opportunity to "harvest" tax losses, says Jerry Miccolis, a senior advisor with Brinton Eaton Wealth Advisors in Morristown, NJ. "It's a have-your-cake-and-eat-it-too strategy if you do it right."

Suppose Jane Doe sells her entire $50,000 position in a mid-cap index ETF (Fund A) at, say, a $5,000 short-term loss and immediately invests the proceeds in another ETF (Fund B) that tracks the same index.

"Jane made the right move. She has stockpiled tax losses while leaving her asset allocation unchanged," he says.

Her loss can be used to offset any realized gains. So if Jane sells her shares in XYZ Technology for a $5,000 short-term gain this year, she won't pay additional tax. If she doesn't have any realized gains, she can offset up to $3,000 in ordinary income and carry over the remaining $2,000 to future years.

"It's a no-lose situation, as long as you only do it when the tax loss is sizeable enough that the benefit outweighs the trading costs," says Miccolis. "And with the proliferation of ETFs -- many that track the same or similar indexes -- the opportunities are there. But trades have to be timed right. With less than five months to go in the year, start planning now."

You shouldn't sell and buy back the same security within 30 days. The IRS calls this a "wash sale" and disallows the tax loss.

A senior financial advisor with the firm, Miccolis holds the Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) designations and is a Fellow of the Casualty Actuarial Society (FCAS) and a Member of the American Academy of Actuaries (MAAA).

Brinton Eaton Wealth Advisors is a fee-only financial-planning, tax-advisory, and investment-management firm in Morristown, N.J. Web:

Contact Information