"Tax-loss harvesting" is an expression "I've heard more in the last couple months than I had in my entire life," says Ron Benoit, a tax partner in the Seattle headquarters of CPA firm Moss Adams.

"Everyone's doing it," says financial planner Robin Tan, of KMS Financial Services, in Kirkland.

The term puts an almost-cheery gloss on the grim reality that most investors won't be reaping profits this year. It means banking the losses from some of this year's lousy investments to reduce taxes owed to the IRS on other income, either this year or in the future.

Washington Mutual shares are a crop well-suited for this particular harvest -- but only if shareholders actually unload their virtually worthless stock, experts say.

Many shareholders lost mountains of money as WaMu shares fell from 2007 highs above $40. Since the company's banking operations were seized by federal regulators in September and sold to JPMorgan Chase, the holding company's stock has traded in the OTC market for a few cents per share.

That's a paper loss of just about 100 percent for almost all investors. But as long as the shares are trading at all, the Internal Revenue Service won't allow a loss to be deducted on shares that still are in the taxpayer's portfolio.

"To take that loss (on your taxes), the stock has to be either completely worthless or you have to sell it," Benoit says.

Tan offers this scenario: "Let's say you sold some (other) stock this year and have $20,000 in capital gains.

"And you're sitting on $40,000 in WaMu losses if you sold today. By selling WaMu, $20,000 of the losses would cancel out the capital gains."

On long-term capital gains, with a tax rate of 15 percent, that would save $3,000 in taxes. In addition, $3,000 of the WaMu loss could be used to reduce a taxpayer's ordinary taxable income.

In this scenario, that would leave $17,000 of the $40,000 loss that could be applied the same way in later years, offsetting both investment income and regular income.

Benoit says a brokerage often will help clients out by taking such stock off their hands. "What many brokers are willing to do is buy all your shares for a penny, or a buck -- it's really just a convenience for you so you can prove to the IRS that you sold the stock."

He says a general rule is to bank such losses sooner rather than later. A taxpayer can't sell the stock in 2009 and apply the loss to 2008 taxes.

"Losses carry forward, but they don't carry back," Benoit says. "Unless you think the value of those shares is going to go up, there's no reason to wait."

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