Tax-loss harvesting is a strategy to sell certain positions at a loss to offset current or future capital gains. This is a timely topic given the current environment. Taking advantage of tax-loss harvesting turns this market volatility into a positive tax opportunity.
We consider the below items related to tax-loss harvesting as opportunities arise.
- Take Advantage of Opportunity - Many sources publish tax-focused articles towards the end of the year suggesting December is the time to consider tax strategies. While end-of-the-year actions can prove beneficial, we believe it is best to review opportunities throughout the year. Employ tax-loss harvesting during periods of drops in the market.
- Understanding the Rules – Once sold for a loss, the position cannot be bought back until after 30 days from the day of sale. Otherwise, the loss is considered a “wash-sale” and the loss will be voided.
- Use Discipline - We don’t suggest selling down below targeted equity allocations when the market drops. Rather, we replace the existing fund with a substitute position with similar characteristics to participate in market movement during the wash-sale rule period of 30 days. After 30 days, repurchase the fund to continue long-term investment strategy.
- Analyze Tax Impact – Losses can either offset realized capital gains or $3,000 of ordinary income if losses outweigh the gains. Losses may also be allowed to be carried forward to future years. We take into account specific situations when employing the tax-loss harvesting strategy.
Please reach out if you have any questions as to how this strategy might work for you,
Matt and Andrew