Don’t throw the baby out with the bathwater when tax-loss selling: Dale Jackson

Detailed summary

As the calendar winds down on 2026, investors will be looking to lower their tax bills through “tax-loss selling.” It involves selling equities at a loss to offset tax on capital…

As the calendar winds down on 2026, investors will be looking to lower their tax bills through “tax-loss selling.”

It involves selling equities at a loss to offset tax on capital gains, but even tax experts warn not to sell just to save a few dollars.

Tax-loss selling is pretty straightforward from a tax perspective, but it can get complicated from an investment perspective. The last thing you want to do is sell a potentially lucrative investment that is in a short-term slump.

A qualified advisor can help separate good losers from bad losers, and you still have until Dec. 30 to evaluate their performance. As third quarter earnings season wraps up, there is one last chance to evaluate a questionable company’s most current financial health.

If the investment you want to dump is an equity mutual fund or exchange-traded fund (ETF), be careful not to throw the baby out with the bathwater. In other words, don’t sell a good portfolio if a few laggards are dragging it down.

Tax-loss selling brings an opportunity to use 2026 stock market losses to recoup tax paid on capital gains in the past three years or reduce tax on capital gains this year or any year in the future.

Because half of capital gains on equities sold in a non-registered trading account are taxed, half of capital losses can eliminate the taxes on capital gains dollar-for-dollar.

As an example; if you accumulated $10,000 in capital gains on equities sold last year and claimed the required $5,000 as income, $10,000 in capital losses will get you a full refund.

It’s important to note, the inclusion rate on capital gains exceeding $250,000 in a year by a single individual increases to two-thirds or 66.7 per cent.

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