Optimal Capital Gains Realization by Individual Taxpayers in the Presence of Capital Losses.

Abstract This paper examines the optimal action of an individual taxpayer when capital tosses in excess of capital gains already have been realized. Many sources advise such a taxpayer to realize additional capital gains, which then can be used to absorb the excess capital losses. Although earlier recognition of capital gain net income is not necessarily detrimental, it often is because it tends to increase the present value of the taxes paid on such income. The intuition behind this result is that taking such action merely accelerates the taxation of the gains and the deduction of the losses, and the net effect is generally to accelerate the recognition of capital gain net income.