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Question: I'm 66 and have major stock losses in my investment accounts. Can I use those losses to reduce what I’ll owe in income taxes? —Ben G., Roanoke, Texas

Answer: Unless the stock market does an abrupt about-face and claws its way back into positive territory in the next two months, a lot of people like Bennie here are going to be sitting on some pretty nasty losses for the year.

Well, there’s little you can personally do to change the market’s direction. Even big shots like Treasury Secretary Hank “Bazooka” Paulson and Federal Reserve Chairman Ben “Helicopter” Bernanke haven’t been able to manage that.

But you may be able to take a bit of the pain out of falling stock prices by harvesting some investment losses in your taxable accounts and trimming your tax bill in the process. If you want those losses to trim your taxes for 2008, however, you’ve got to take them by the end of the year.

The process of booking tax losses is fairly straightforward, but, as is usually the case with taxes, there are a couple of little twists you need to be aware of. Here’s the drill.

Offsetting gains. If you own shares of stock or mutual funds that are now trading for less than you paid for them, you can sell those shares to establish a loss. You would then use this loss to offset any realized capital gains that you have on stock or fund shares, in effect erasing the tax you would otherwise owe on those gains.

Gains? What gains? I can imagine you saying. Well, the gains could be shares of stocks or funds you sold for a profit earlier this year before the market really plummeted or, for that matter, shares that you bought long enough ago so that you were still able to unload them for more than you paid despite the market’s dive.

If you own funds, remember: even if the fund posts a loss for the year, it could still have net realized capital gains from securities it sold for a profit at some point during the year. Since funds are required by law to distribute net realized capital gains to shareholders each year, you could end up with a taxable capital gain even if your fund has a loss - and even if you haven’t sold shares.

If your fund distributes short-term capital gains, those gains are considered ordinary income for tax purposes. You wouldn’t offset a fund’s short-term capital against your capital losses.

But if your fund distributes long-term capital gains, you would apply capital losses from other securities against the fund’s long-term capital-gains distributions just as you would against capital gains stemming from sales of stock or fund shares.

Deducting a loss. If the loss you have from selling stock or fund shares exceeds the amount of capital gains you have - or if you don’t have any capital gains at all - you can apply up to $3,000 of your capital loss against ordinary income. That would include wages, interest from CDs and the like, dividends and even taxable Social Security benefits and pension income, including taxable withdrawals from IRAs and 401(k)s.

If you still have losses left over after doing this, you can carry them forward to later years.

Short-term vs. long-term losses. I’ve simplified this process a bit. Actually, the tax code requires that you pair short-term losses with short-term gains (that is, gains or losses on securities you’ve held a year or less) and long-term losses with long-term gains (gains or losses you have on securities you’ve held more than a year) in order to arrive at a net capital gain or loss. For details on how to do that, you can check out IRS Publication 550.

No double dipping. While you’re perusing this fascinating publication, you’ll also want to check out the section on wash-sale rules to assure you don’t violate them. Basically, if you buy the same security or a "substantially identical" one 30 days before or after the sale you made to establish a loss, the IRS will disallow all or part of that loss. So be careful. You don’t want to go to the trouble of taking a loss only to screw up the deduction.

Stock swap. Ah, but what if you would like to take a tax loss but you still think the fund or stock has good potential? Or what if you would like to take advantage of the market slump, but you don’t want the screw up the mix of assets in your portfolio?

In that case, you can do a tax swap: sell a stock or fund and quickly replace it with one that’s similar. Just make sure you don’t immediately buy the same stock or fund or even one that’s “substantially identical” - say, replacing Vanguard’s S&P 500 index fund with Fidelity’s S&P 500 index fund - lest you run afoul of the wash-sale rules.

But you’ve still got plenty of maneuvering room around this restriction. If you sell shares of, say, an S&P 500 index fund, you could always buy shares of a total stock market index fund. Or if you’re selling an actively managed fund, check out the fund’s category, investing strategy and risk-return profile at Morningstar.com and then look for a fund in the same category with a similar strategy and profile.

It’s harder to find a close match with stocks, but you can likely find a decent fit by looking for a company of roughly the same size in the same industry, or you can buy a sector fund or ETF that tracks the same industry. Once you’re beyond the 30-day wash-sale threshold, you can then buy back shares of your original stock or fund, if you wish.

So between now and the end of the year, take a look at your portfolio to see if you might be able to turn some losses to your tax advantage. Granted, a tax write-off isn’t as nice as a gain. But these days, you take what you can get.