Beat the Clock: Lock in Losses, Crush Your 2025 Tax Bill

Here’s your step-by-step action plan. Complete it before December 31 to lock in 2025 tax treatment.

1. Pull Complete 2025 Realized Gain/Loss Data

• Download a 2025 realized gain/loss report from your broker(s).
• Include dividends and interest (some brokers separate these).
• Note: Many brokers post preliminary 2025 reports in mid-to-late December.
  
  

2. Identify Positions with Unrealized Losses

Focus on taxable accounts only (IRAs/401(k)s don’t benefit). Prioritize:

• Short-term losses (offsets short-term gains taxed at ordinary rates)
• Long-term losses (offsets long-term gains + up to $3,000 ordinary income)
  
  

3. Calculate Your Current 2025 Net Capital Gain Position

Add up all realized gains and losses so far in 2025. Example:

• Realized short-term gains YTD: +$45,000
• Realized long-term gains YTD: +$120,000 → You’ll want losses to offset as much of the $45,000 short-term bucket first.
  
  

4. Harvest Losses Strategically

Sell securities sitting at a loss on or before December 31, 2025. Pro tip: Harvest in lots—sell specific tax lots with the highest cost basis to maximize the loss.

5. Avoid the Wash-Sale Rule (The #1 Mistake)

The IRS disallows the loss if you (or your spouse, or your IRA) purchase a substantially identical security 30 days before OR after the sale → 61-day window. Common traps:

• Selling VOO and buying VOO again within 30 days
• Selling AAPL in a taxable account and buying AAPL in your IRA two weeks later

Safe alternatives (maintain similar exposure without triggering wash sale):

• Swap VTI → SCHB (total U.S. market ETFs)
• Swap QQQ → VGT or ONEQ
• Swap individual stock → different company in same sector or broad sector ETF
  
  

6. Replace Sold Positions Immediately (Optional but Recommended)

Don’t go to cash for 31 days—you’ll miss market returns. Buy the “similar-but-not-identical” replacement the same day or next day to keep your asset allocation intact.

7. Document Everything

Keep records of:

• Sale date and proceeds
• Original purchase date and cost basis
• Replacement security purchased (proof it’s not substantially identical)
  
  

8. Consider “Gain Harvesting” if You’re in the 0% Bracket

Florida residents in the 0% federal long-term capital gains bracket (2025 taxable income under ≈$47,025 single / $94,050 MFJ) can sell winners, pay zero federal tax, and step up basis. Useful for highly appreciated stock or ETF positions.