How to Sell Stock to Offset Gains

Capital losses can offset an unlimited amount of capital gains, plus $3,000 per year in income.

Form 1040 Tax Forms image by Viola Joyner from

When you sell an investment asset, such as stock, at a profit, the Internal Revenue Service assesses capital gains tax on the profit. However, the IRS taxes net profits, after you take losses into account, rather than gross profits. If you have sold stock at a profit and want to lower your exposure to capital gains taxes, you can sell assets on which you have lost money from elsewhere in your portfolio. You can use capital losses to cancel out capital gains, plus up to $3,000 per year in income.

Step 1

Identify your long-term and short-term capital gains. Long-term gains are gains on assets you have held for longer than a year. Short-term gains are gains on assets that you have held for less than one year. You pay ordinary income rates on short-term capital gains; long-term rates are a maximum of 15 percent of your gains, though as of 2013, that rate was slated to increase to 20 percent, barring congressional intervention.

Step 2

Identify any assets that have lost money that you have held for less than a year.

Step 3

Direct your broker to sell off enough short-term assets to cancel out your gains. If you don't have enough short-term losses to offset your gains, consider selling all your short-term losers.

Step 4

Direct your broker to sell off enough long-term losers to offset the remainder of your capital gains. The reason you sell off short-term losers first is that short-term losses enable you to take a higher tax deduction than long-term losses.

Step 5

File a Form 8949. This is the tax form the IRS uses to track capital gains and losses. It will also help you compute your total capital gains tax liability, if any.