Q. Some stocks in my portfolio are trading for less than I bought them for. Can I sell them and take a deduction for the loss on my federal income tax?

A. This is a good time to explore selling your portfolio dogs since the year is starting to draw to a close.

You can use losses on your investments to offset gains from the sale of other stocks or investment real estate. Or up to $3,000 of your other income.

"That's certainly a viable strategy," said Honolulu financial planner John Takara. "You can coordinate your large capital gains with a review of your portfolio."

He said taking such losses may be more popular this year as people sell real estate investments that have appreciated in Hawai'i's hot property market.

The tax savings can be substantial. For example, someone who had a $6,600 profit selling their holdings in Honolulu-based Barnwell Industries Inc. Shares of the company involved in development in Hawai'i and oil and natural gas exploration in Canada have surged 80 percent this year.

At the same time the investor sold at a $6,100 loss shares of Kailua, Kona-based Cyanotech Corp., which makes microalgae-based nutritional products. Cyanotech's shares are down 55 percent since the beginning of 2005.

Takara said an investor must first determine whether the gains or losses come from investments held a year or more. Those held 12 months or more are considered long-term gains for tax purposes. Those held for less time are considered short term, which are generally taxed at higher rates.

The investor would need to apply short-term gains against short-term losses and do the same on the long-term gains and losses. Anything that's left over in each of the categories can then be applied to each other.

In the case above, let's assume the Barnwell gain was a long-term investment, while the Cyanotech loss was short-term and there were no other gains or losses to consider. After doing the math you end up with a $500 gain on which you'd pay taxes on.

That would amount to a $75 levy at a 15 percent long-term capital gains rate and compares to the $990 they would have owed on a $6,600 gain.

There are other considerations to this, including whether you think the money-losing stock will ever regain its former altitude.

If the investor thinks Cyanotech is a good investment that will turn around after going through a rough patch, he or she could repurchase the shares after 30 days without any tax repercussions, Takara said. If they are repurchased before then the investor may lose use of the loss for tax purposes.

Capital losses also can be applied against your other income up to $3,000 in any one year until it is gone, Takara said.

There are a number of other end-of-year tax tips that should be considered. Takara said much of this will depend on taxpayers' individual situations. He said generally people should take advantage of their 401(k) plans that feature pre-tax contributions.

He said people also can consider accelerating expenses this year such as making a January mortgage payment in December to get the interest deduction for their 2005 taxes.

Got a question about mortgages, credit cards or other financial matters? Contact Akamai Money columnist Greg Wiles at 525-8088 or gwiles@honoluluadvertiser .com

Reach Greg Wiles at gwiles@honoluluadvertiser.com.