Year’s End Prompts Portfolio Evaluation : Investment: Keeping tax write-offs in mind, this is the time of year people reassess finances and consider selling losing stocks or mutual funds.

As the end of the year approaches, it’s prime portfolio-culling time for many savers and investors.

With visions of tax write-offs to inspire them, they take inventory of their financial assets, paying particular attention to the ones that haven’t worked out well.

Sell a losing stock or mutual fund, or any other clunker, before the end of December, and you may at least get the consolation of reducing your tax bill for the year.

If, for example, someone in the 28% marginal tax bracket decides to bite the bullet on a $1,500 loss, Uncle Sam will effectively cover $420 of the damages.

“Investors can create tax losses,” says Gregory Nie, an analyst at the investment firm of Kemper Securities in Chicago. “But tax-loss selling should never interfere with a portfolio’s main purpose.”

A second caveat--the job needs to be done carefully, in accordance with some strict rules, if it is going to achieve its desired effect.

Losses can be taken in unlimited amounts to offset capital gains realized on other transactions during the year.

But they can only be used up to a maximum of $3,000 as a deduction against other “ordinary” income. Anything that exceeds that limit must be carried forward to future years, where it will again be subject to the $3,000 annual cap.

“With the stock market generally strong this year, you may want to realize some gains to offset losses carried forward from previous years,” says Standard & Poor’s Corp. in its advisory publication The Outlook.

“Or, if you have already taken profits in 1993, you might be able to cut your taxes by selling some losers before Dec. 31.”

Of course, tax-selling strategies often involve costs such as brokerage commissions that need to be considered. They also raise the question of where you’re going to put the proceeds afterward.

If you want simply to reinvest the money in the same security, the repurchase must come more than 30 days away from the sale. Less than that, and the sale is considered a sham “wash-sale” transaction that doesn’t qualify for a deductible loss.

That leaves several alternatives. “You can wait 30 days and buy back the same issue,” S&P; says. Or, “if you think the stock will rise, you can buy more shares now and sell the first position after 30 days.”

Another choice is to switch into a similar, but not identical security--for instance, a stock in the same industry or a mutual fund with a similar operating style.

Swapping of this sort is common in bond as well as equity investing. “A replacement bond must differ from the bond sold in two of three determining elements--issuer, coupon and maturity,” S&P; notes.

But “the wash-sale rule does not apply to gains,” points out the accounting firm of Grant Thornton. “A sale at a gain in the current year can generally be recognized, with the position re-established.”

Tax-selling season can serve other useful purposes. It can encourage investors to cut their losses in unsuccessful investments while letting their winners run.

But it also can snare the unwary in a welter of confusion and extra costs. “Taxes should be a secondary consideration in portfolio planning,” says Nie.

“Tax-oriented transactions are detrimental in the long run if they disrupt a well-constructed portfolio geared to a specific investment objective. Having a game plan and sticking to it is always the top priority.”