<p>If I sale a fund at a loss before year end, will that bump up my income line for 2008 financial aid reporting even though the net effect on my taxes is a loss, since sales are reported on a 1099? Would it be better to wait until January since my income is fairly low and I would probably qualify for some aid for the 2009-10 year? Or does that loss help you qualify for more financial aid since your bottom line taxable income is lower? I can't really afford to pay for expensive tax advice, since I've lost 1/2 of my money in this market!!</p>
<p>Net capital losses directly reduce taxable income, up to a limit of $3000 per year. If you own a mutual fund, chances are it has some capital gains already for this year - check your statement. Any capital loss will first offset realized capital gains. So if you have gains of $1000, for example, and you sell your mutual fund for a total loss of $6000, then the first $1000 of your loss will offset your $1000 gain, leaving you a net loss of $5000. The first $3000 of this loss reduces your taxable income for 2008. The remaining $2000 of your net loss carries over to next year, when you can use it to offset any gains or reduce taxable income in 2009. This is assuming that all gains/losses are long term.</p>
<p>So does that mean as long as I'm selling a fund at a loss, the sale cannot reduce my financial aid? The sale doesn't show up as income anywhere?
THank you for your help.</p>
<p>One circumstance where even selling a fund at a loss may make a difference is if your income is low enough to make you eligible under FAFSA for the simplified needs test (income <$50,000) or the automatic zero EFC (income <$30,000). Selling stocks may make you ineligible to file a 1040a or 1040 ez which would make you ineligible for simplified needs and/or automatic zero EFC.</p>
<p>The sale of an investment at a loss will not increase your expected family contribution to financial aid. However, you still have the same amount of assets regardless of how you hold them (in a mutual fund or in cash). So for example, you might have $10,000 in a mutual fund with $5000 of unrealized losses. That $10,000 mutual fund is an asset that you report on FAFSA. If you sell the mutual fund for $10,000 and put that money into a money market fund, you still have $10,000 in reportable assets.</p>
<p>If you realize the capital loss this year, this will reduce your income by the amount of the loss (up to $3000) which would reduce your EFC accordingly.</p>
<p>Whether you take the loss this year or hold on to this mutual fund in hopes that you'll recoup some of its lost value next year really depends on your overall financial situation. You need to calculate your EFC (and your taxes!) under various scenarios to see what makes most sense for you.</p>