what is tax selling 
tax selling refers to a type of sale in which an investor sells an asset with a capital loss in order to lower or eliminate the capital gain realized by other investments for income tax purposes tax selling allows the investor to avoid paying capital gains tax on recently sold or appreciated assets understanding tax sellingtax selling involves selling stocks at a loss to reduce the capital gain earned on an investment since capital loss is tax deductible the loss can be used to offset any capital gains to reduce an investor s tax liability 1 for example let s assume an investor has a 15 000 capital gain from the sale of abc stock they fall in the highest tax bracket and so will have to pay 20 capital gains tax or 3 000 to the government 2 but let s say they sell xyz stock for a loss of 7 000 their net capital gain for tax purposes will be 15 000 7 000 8 000 which means they ll have to pay only 1 600 in capital gains tax notice how the realized loss on xyz reduces the gain on abc and hence reduces the investor s tax bill the tax deductibility of losses might prompt investors to sell at a loss deduct the loss and then turn around and buy the same stock again in an effort to evade taxes a practice known as a wash sale when participating in tax selling the internal revenue service irs prohibits an investor from executing a wash sale wash sales to be specific occur when an investor sells an asset through a broker in order to realize a loss but simultaneously repurchases the same asset or substantially identical asset from another broker within 30 days of the sale if a sell and buy security transaction is considered a wash by the irs the investor would not be allowed any tax benefits 3 tax selling vs wash saletax selling allows an investor to maintain their position while incurring a capital loss in effect wash sales are illegal whereas tax selling is allowable tax selling typically involves investments with huge losses which often means that these sales focus on a relatively small number of securities within the public markets however when a large number of sellers execute a sell order at the same time the price of the securities falls after the selling season ends shares that become extremely oversold have an opportunity to bounce back in addition the fact that tax selling often occurs in november and december as investors try to realize capital losses for the upcoming income tax season could mean that the most attractive securities for tax selling are investments that are most likely to generate strong gains early in the next year a good strategy for investors then would be to buy during the tax selling episode and sell after the tax loss has been established if investors would like to repurchase the shares sold for a loss they can do so after the 30 day wash sale rule no longer applies in addition shares sold for a loss must have been in the investor s possession for more than 30 days 