In the downturn I want to re calibrate the portfolio a bit. But my concern is the short term gain tax that I might have to pay.
I had bought some opportunity stocks and now they are giving good profits so I want to sell them and get into good long term compunders.
Lets say I have two stocks A and B.
I am making losses in A. So I sell A and book losses. (I don’t want to sell A but just to make book entry)
I am making profits in B. So I sell B and book profits.
Losses are more than profits. So there is not short term tax.
Now A is good company and I didn’t wanted to sell it in the first place, but as it was giving me an opportunity to adjust against my gains i sold it.
Now I repurchase A after 2-3 days.
Is this a good strategy.
Am I violating any laws here.?
I am not a tax expert, but in my opinion you are not violating any laws. A downside to this is that you are delaying the LTCG cutoff date. So your 1-year for LTCG to be applicable gets reset to the buy date.
If you think A is a better stock than B, then if I was in your position, to book short term losses, I would sell B and buy more of A with the funds. So you have booked short term loss. If you hold the gains for 1 year, there will be no tax on that as well.