Home / Business and Economy / Tax Trick: Sell Stocks, Slash Social Security Tax
Tax Trick: Sell Stocks, Slash Social Security Tax
11 Oct
Summary
- Selling losing stocks can reduce taxes on Social Security benefits.
- Frozen income thresholds increase tax benefits for retirees.
- Wash-sale rule and taxable accounts limit this strategy.
A strategic stock sale before December 31, 2026, can provide Social Security recipients with a significant dual tax advantage. The Internal Revenue Service (IRS) permits capital losses to offset capital gains dollar-for-dollar, with up to $3,000 of remaining losses deductible against ordinary income annually. This deduction can reduce a retiree's adjusted gross income (AGI).
This reduction in AGI can subsequently lower the taxable portion of Social Security benefits. Decades-old, unadjusted income thresholds for taxing benefits mean that even modest year-end deductions can now push more retirees into a lower tax bracket for their benefits. This shift can result in substantial annual savings.
The strategy is most effective for those nearing the $34,000 combined income threshold, where a single sale could decrease taxable benefits by approximately $2,200. However, this tactic is restricted to taxable brokerage accounts, as losses within IRAs or 401(k)s do not qualify. The IRS wash-sale rule, which disallows losses if the same security is repurchased within 30 days, also impacts this strategy. Automatic dividend reinvestment can inadvertently trigger this rule.
