Tax Tips: Turn losses into gains

If you have held securities that have proved to be a losing proposition, it’s time to take stock of their worth in your portfolio.

Selling some loss-making investments can be a great way to recover some of the capital gains realized in the last three years, says Gary Dent, national tax leader at Grant Thornton.

“If you are an investor and you have got investments that have accrued losses then you [may want to] trigger those losses,” he says. “You can carry a capital loss back on your investments [up to the last] three years.”

The strategy works quite effectively if the investor has realized capital gains this year or has reported capital gains in the last three years of tax return.

Investors with a capital gain this year, or any of the last three years, might want to talk to their financial advisor about selling investments with accrued losses before the end of the year.

But there are some rules that taxpayers have to be careful of, however. Dent says an investor can’t sell loss-making securities to their spouse and realize the loss.

“If you’re selling investments and triggering losses you have to make sure that certain related parties are not buying the same investments within a 30-day period after you sell them,” he says.

If an investor only has losses in their portfolio and no gains against which to apply those losses or if they have realised a loss while their spouse has realised a gain, the losses can be strategically transferred to the spouse with the gain, provided it’s done in a timely fashion.

“If your spouse has realized a gain and you have a loss, there are ways to transfer the loss to the spouse with the gain; however, if you do sell, make sure the transaction settles before December 31—many transactions take a couple of days to complete.”