However unnerving, there s this to be said about stock-market crashes and bear markets: They generate losses, which in turn lower your taxes. One of the few positive things I can say about the tech-stock collapse of 2000-02 is that I didn t pay capital gains taxes for years.

If you ve been avoiding looking at your account statements recently, a state of denial I can well understand, it s time to take a deep breath and tally your unrealized losses. (Most online accounts have a feature that displays that information, as do many paper reporting statements.) I did this recently, and though the results came as something of a shock, I was actually surprised at how many positions still showed gains or only minor declines. Of course, many of these positions were 10 years old or more.

the result of selling some of my energy positions last spring; see column you can use these losses to offset the gains. Most investors can deduct up to $3,000 in net losses against ordinary income ($1,500 if you re married and filing separately), provisions everyone should be sure to take advantage of. And excess losses can be carried forward to that happy day when once again you need to shield gains.

Obviously, you need to sell something to realize a loss. What should you sell? I simply start with the biggest losers. This year, two of those positions were General Electric (GE) and Valero (VLO), not the financial stocks I d begun buying this year and which I expected to show the biggest losses.

I had no trouble dispensing with both. GE has pretty much been a disappointment ever since Jack Welch stepped down. I don t blame his successor Jeffrey Immelt; after all, Welch was the architect who added NBC (now NBC/Universal) to GE s portfolio and beefed up GE Capital. Media and financial are two sectors that have been crushed in the recent selloff, dragging down GE as a whole. While I believe GE Capital will weather the storm, I m no longer interested in owning a television network or Hollywood studio.

Part of my goal while selling is to maintain my overall exposure to the market; I m not trying to time the market. I also want to avoid a common syndrome, which is to sell the biggest losers, then chase the best-performing stocks. So I put the GE proceeds into shares of United Technologies (UTX), which is a genuine industrial cyclical compared to the hybrid GE. UTX is down over 35% this year, better than GE has fared, but still a steep decline. Not only are cyclicals out of favor in the midst of depression fears, but I believe they could benefit from proposed global infrastructure spending.

For Valero, I substituted Devon (DVN) and Chevron (CVX), two oil producers I ve previously recommended for their exposure to Brazil s big offshore oil discovery. A closer alternative would have been another refiner, like Tesoro. But the refiners have shown a perverse ability to suffer from both low and high oil prices. I suppose there exists a golden mean where they manage to make money, but I ve given up waiting for it. The refining business is just too competitive, which is great for consumers but not shareholders. By buying Devon and Chevron, I m gradually increasing my exposure to the energy sector now that oil prices have collapsed below $50 a barrel, a strategy I intend to continue to pursue if oil prices drop further.

I find making these kinds of changes to be healthy, forcing you to concentrate on the investment rationale for your holdings. By moving from one stock to another in the same sector, you also avoid the problem of a wash sale, which is selling something to generate a tax loss and then buying it back before waiting the required 31 days.

Of course you have to make these moves before Dec. 31 to reduce your 2008 taxes. I m planning to continue realizing losses gradually over the remaining month. Supposedly there s a burst of this kind of selling right before the end of the year, depressing stocks, followed by the January effect rise once the selling is over. That seems plausible, but I ve never seen any data to support it. Last year there certainly was no January effect. In any event, by maintaining your overall market position, you don t need to worry.

(Correction: As originally published, this story said married couples filing jointly could deduct up to $3,000 in net capital losses. In fact, most investors, including individuals, can deduct up to $3,000 in net losses, with the exception of married individuals filing separately, who can deduct up to $1,500.)