Investors Can Offset Capital Gains by Selling Losing Securities Before Year-End
Translated & summarized from N12 by baba
Israeli investors can realize capital losses on securities before December 31, 2026, to offset capital gains and reduce their tax burden. A realized loss can reduce taxable gains dollar-for-dollar, potentially saving 25% of the loss amount in taxes. Losses can also offset interest and dividend income under certain conditions. Unused losses 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 securities before year-end can offset capital gains and reduce tax liability.
- A capital loss can be offset against capital gains realized in the same tax year.
- Realized losses can also reduce taxable income from interest and dividends up to 25%.
- Unused losses can be carried forward to future years, but only against capital gains.
- Tax simulators can help investors assess potential tax savings from realizing losses.
Israeli investors who realized capital gains in 2026 and hold securities currently trading at a loss face a year-end decision: sell the losing assets to realize the loss for tax purposes, or hold onto 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, and any remaining loss can also be offset against taxable inflation amounts at a ratio of one shekel of loss for every three and a half shekels of the inflation component.
Realizing a loss before December 31, 2026, creates a current capital loss that can reduce the tax liability on gains from the same year. For example, an investor with a 40,000 shekel real gain who paid 10,000 shekels in tax (25%) could offset this with a 40,000 shekel real loss, effectively eliminating the tax liability and potentially recovering the tax already paid. A general rule of thumb is that each shekel of capital loss offset against a gain taxed at 25% saves a quarter shekel in taxes.
The tax law also allows current capital losses to 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 that are not fully utilized in the current year can be carried forward to future years, but can then only be offset against capital gains. To carry forward a loss, an annual tax return must be filed for the year the loss was incurred. The article also notes that losses from foreign securities 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 in 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.
