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Investing Specialists

Market Correction Blues? Don't Write Off Tax Selling

Even buy-and-hold investors may be able to identify worthy candidates.

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In tough markets, investors are often advised to find a silver lining by engaging in tax-loss selling. By selling securities that are trading for less than they paid for them, they can net tax losses that they can use to offset capital gains and, if they still have excess losses, up to $3,000 in ordinary income.

But for some investors, that advice rings a little hollow. On many household balance sheets, taxable accounts--typically the only account type where it makes sense to engage in tax-loss selling--are but a small piece of the overall pie. Investors' IRAs and 401(k)s are where the real money is, but tax-loss selling from those accounts rarely makes sense, as discussed here.

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.