Optimal Tax-Timing with Asymmetric Long-Term/Short-Term

We develop an optimal tax timing model that takes into account asymmetric long-term and shortterm tax rates for positive capital gains and limited tax deductibility of capital losses. In contrast to the existing literature, this model can help explain why many investors not only defer shortterm capital losses to long term but also defer large long-term capital gains and losses. Because the benefit of tax deductibility of capital losses increases with the short-term tax rates, effective tax rates can decrease as short-term capital gains tax rates increase. Journal of Economic Literature Classification Numbers: G11, H24, K34, D91.