Tax-Loss Harvesting
Realizing losses to offset gains may reduce current tax, subject to wash-sale rules. How much it helps depends on portfolio size, volatility, and your gain profile — no outcome is guaranteed.
At a glance
- Category
- Investment
- May be relevant for
- Taxable investors
- Our approach
- Document review → proposal → implementation
- Service area
- Nationwide (office in Westlake Village, CA)
Whether this applies to you depends on your specific facts and circumstances.
Ask a CPA about your situationImportant: This page is for educational purposes only. It describes how this strategy may work under current law. Whether it is appropriate for you, and how to implement it correctly, depends entirely on your specific facts, timing, and documentation. This is not individualized tax advice. Speak with a licensed CPA before acting.
How it may work
Tax-Loss Harvesting — a plain-English overview
The sections below describe how this strategy works under current tax law, what conditions may make it applicable, and what factors affect the outcome.
How it works
When a taxable portfolio position has declined in value, selling it realizes a capital loss. That loss can offset capital gains elsewhere in the portfolio — including gains from other sales or distributions — and up to $3,000 of ordinary income per year. Net losses above $3,000 carry forward to future years. The position can be replaced with a similar (but not 'substantially identical') investment to maintain market exposure.
The wash-sale rule
You cannot repurchase a 'substantially identical' security within 30 days before or after the loss sale and claim the loss. This is the wash-sale rule (§1091). Violation results in the loss being disallowed — the disallowed loss adjusts the basis of the repurchased shares instead. 'Substantially identical' is more restrictive for identical securities (selling and rebuying the same ETF) than for similar-but-different investments (selling one S&P 500 ETF and buying a different index ETF tracking the same index). The IRS has not definitively ruled on all wash-sale scenarios, and professional judgment matters.
The long-term view — tax deferral, not elimination
Tax-loss harvesting defers, not eliminates, tax. The harvested loss reduces the basis of the replacement position. When that position is eventually sold, the gain is larger. The benefit is the time value of money on the deferred tax — how much you keep invested longer before paying. In a portfolio managed with ongoing harvesting discipline, the deferral can be sustained for decades, which may be meaningful. But the math depends on your gain profile, holding periods, and ultimate disposition (sale vs. step-up at death).
When harvesting is more and less valuable
Harvesting against short-term gains (taxed as ordinary income) is more valuable than offsetting long-term gains (taxed at preferential capital-gains rates). Harvesting in high-volatility markets creates more opportunities. In years with no gains to offset, losses simply carry forward. For smaller accounts or portfolios with minimal realized gains, the transaction costs, complexity, and potential wash-sale risk may not justify an aggressive harvesting program.
Document-first
What we'd review before recommending this strategy
We do not guess. We review the documents, propose, and implement. Here is what we'd want to see to evaluate whether this strategy may apply to you.
- Taxable account holdings and unrealized gain/loss positions
- Realized gains and distributions in the current year — the offset target
- Capital loss carryforwards from prior years — how much loss already exists
- Wash-sale exposure — positions recently purchased in other accounts (including IRAs or spousal accounts)
- Transaction costs and bid-ask spread — to confirm harvesting is economically net-positive
- Long-term basis management strategy — coordinated with Total Wealth Services
Who this may fit
Profiles where this strategy comes up most
These are the client situations where we most commonly evaluate this strategy. Whether it applies to you depends on your specific facts.
Common Questions
Questions about Tax-Loss Harvesting
Educational answers to questions we often hear when discussing this strategy with clients.
Does tax-loss harvesting work inside a retirement account?
No. Losses inside a tax-deferred or tax-free account (IRA, 401(k)) have no tax consequence — they cannot be harvested. Tax-loss harvesting applies only to taxable brokerage accounts.
Educational content only
This page describes Tax-Loss Harvesting for general educational purposes under current tax law. It is not individualized tax, legal, or investment advice. Whether this strategy is appropriate for you — and how it should be structured, documented, and reported — depends entirely on your specific facts, timing, and circumstances. Tax law changes frequently. Always consult a licensed CPA before acting on any information here.
We do not guess. We review the documents, propose, and implement.
Ask a CPA
Wondering if Tax-Loss Harvesting applies to you?
Tell us about your situation and we'll follow up within one business day. We review the actual documents and give you a direct answer — no obligation.
- Document-first review — we start with your actual returns and records
- Clear explanation of what may apply and why
- No obligation — honest if there isn't enough value to act on
Explore more
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Options Overlays
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Collars and covered calls may help manage risk around a concentrated position when suitability fits. These are nuanced strategies that depend on your goals, basis, and risk tolerance.
Ready to find out what applies to your situation?
A discovery call is how we start. We review the documents and tell you honestly what may be worth pursuing.