Investors Can Offset Capital Gains by Selling Losing Stocks Before Year-End
Translated & summarized from Mako by baba
Israeli investors can reduce their 2026 tax burden by selling securities with unrealized losses before December 31st to offset capital gains. This strategy allows for a dollar-for-dollar offset against real capital gains and can also reduce tax on interest and dividends up to 25%. Losses not fully utilized can be carried forward to future years, but only against capital gains. Investors should consider tax simulators to evaluate the impact of selling losing assets.
The story in 5 lines · by baba
- Selling losing stocks before December 31, 2026, can offset capital gains realized in the same tax year.
- A capital loss of 40,000 shekels can save an investor 10,000 shekels in taxes at a 25% rate.
- Unrealized capital losses can also offset income from interest and dividends taxed at up to 25%.
- Losses not used in the current year can be carried forward to offset future capital gains.
- Exchange rate fluctuations affect the calculation of gains and losses on foreign securities.
Israeli investors who realized capital gains in 2026 and hold stocks currently at a loss face a year-end decision: sell the losing assets to offset gains or hold them. According to Section 92 of the Income Tax Ordinance, capital losses from selling securities within the tax year can be offset against capital gains realized in the same year. This offset applies dollar-for-dollar to the real component of the gain, with any remaining loss also deductible against taxable inflationary amounts at a ratio of one shekel of loss for every three and a half shekels of the inflationary amount.
Selling securities by December 31, 2026, creates a current capital loss that can reduce the tax liability on gains from that year. For example, an investor with a 40,000 shekel real gain who paid 10,000 shekels in tax (25%) can recover this tax by selling a security with a 40,000 shekel real loss before year-end, effectively reducing their taxable base to zero. If the sale is postponed, the 10,000 shekel tax liability remains, and the loss continues to be carried forward.
The tax benefit extends beyond capital gains. A current capital loss can also be offset against income from interest or dividends related to the same security, or from other securities, provided the tax rate on that income does not exceed 25% for individuals. This includes regular dividends and bond interest, but excludes dividends from substantial shareholders taxed at 30% and interest from bank deposits or savings plans, as these are not classified as securities.
Losses not fully utilized in the current year can be carried forward to future years, but they can then only be offset against capital gains, not interest or dividends. To carry forward a loss, an annual tax return must be filed for the year the loss was incurred. The tax authority also considers losses from foreign assets, which are first offset against foreign capital gains and then against domestic gains, with exchange rate fluctuations impacting the final calculation.
Investors can use tax simulators provided by their trading accounts to assess the potential tax savings before executing trades. The decision to sell losing assets hinges on the amount of gains already taxed, the size of the unrealized loss, and the investor's long-term outlook for the losing security.
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