As the end of 2025 nears, investors may want to consider how they can use tax-loss selling to their benefit.
Buying stocks low and selling them high is ideal, but sometimes investments go sour. In such cases, all hope is not lost — at the end of the year, investors can sell investments that provided losses instead of capital gains.
The money made from selling off losses can then be used to offset capital gains liabilities incurred for the year. This is the principle behind tax-loss selling, also known as tax-loss harvesting.
This valuable strategy offers investors another opportunity to lower their tax bill for 2025. So let’s take a look at how tax-loss selling works, plus the final tax-loss selling dates for investors in Canada, the US and Australia.
In this article
How does tax-loss selling work?
Tax-loss selling is the process of selling stocks at a loss to reduce the capital gains earned on an investment. Since capital losses are tax deductible, they can be used to offset capital gains and reduce tax liability on an investor’s tax return.
Tax-loss selling generally involves investments that have seen significant losses, and because of this, these sales generally focus on a relatively small number of securities within the public markets.
In cases where many investors are executing a sell order in tandem, the price of the securities will fall. In addition, the fact that tax-loss selling often occurs in November and December means the most attractive securities for tax-loss selling at that time are investments that could generate strong capital gains early in the next year, as once selling season has ended, shares that have become largely oversold can bounce back.
Some investors may consider selling an asset at a loss, deducting that loss for a tax gain and then purchasing the same stock again in an effort to evade taxes. This is known as a wash sale, and is prohibited by the Internal Revenue Service (IRS); if the IRS deems a transaction to be a wash, the investor would not be allowed any tax benefits.
To avoid this situation, investors must wait 30 days to repurchase shares that were originally sold for a loss. Additionally, shares sold for a loss must have been in the investor’s possession for over 30 days.
As a result, a potentially beneficial strategy would be to buy during the selling season and sell after the tax loss has been established. This approach could be used on either long-term capital gains or short-term capital gains.
What are the important tax-loss selling dates for 2025?
Tax-loss selling comes with many potential benefits, but it nevertheless has some strings attached.
The key thing for investors to remember is that it has deadlines. For investors filing their taxes in Canada, the last day for tax-loss selling in 2025 is December 30. Transactions for stocks purchased or sold after this date will be settled in 2025, so any capital gains or losses will apply to the 2025 tax year.
The timing for the tax-loss selling deadline for Canadians was altered in May 2024, when Canada switched to a T+1 settlement cycle (one business day following the trade date) from a T+2 one.
The system differs for investors who are filing their taxes in the US. Based on information provided by the IRS, the last day for tax-loss selling in the United States this year is December 31.
For Australian investors, the final date for tax-loss selling is June 30, 2026, which is the final day of the 2025/2026 financial year.
Investors should always consult with an expert or review relevant tax documents directly for complete answers. The information contained in this article should not be considered tax advice.
The flip side of tax-loss selling
As tax-loss selling starts, opportunities can open up for those who have spent the year on the sidelines.
In her piece “How Bout Tax Loss Buying?,” Gwen Preston of Resource Maven explains that Canaccord Genuity Group (TSX:CF,OTC Pink:CCORF) has found that from mid-November to mid-December, S&P/TSX Composite Index (INDEXTSI:OSPTX) stocks that are down more than 15 percent year-to-date underperform the index by nearly 4 percent. However, from mid-December to mid-January, those same stocks outperform the index by 3.6 percent.
“That outperformance is on top of gains the TSX reliably generates over that time frame,” Preston explains. “So instead of only seeing tax-loss selling as a time to generate tax credits by dumping dogs, let’s look at the opportunity to profit.”
Watch Gwen Preston of Resource Maven discuss tax-loss selling.
How can investors time tax-loss selling?
Regardless of whether you’re engaging in tax-loss selling or buying, Steve DiGregorio, portfolio manager at Canoe Financial, recommends acting swiftly and aggressively as “liquidity will dry up.”
He sees the second and third week of December as the ideal window, which is well ahead of the “Santa Claus rally” — the period around the last week of December when stocks tend to rise ahead of a healthier market in January.
For now, the year isn’t over yet, so whether you’re tax-loss selling or buying, there’s still time to talk to your accountant or financial advisor to determine which approach is best for you.
Securities Disclosure: I, Lauren Kelly, hold no direct investment interest in any company mentioned in this article.