Is Now a Good Time to Consider Doing Some Tax-Loss Harvesting?

Tax-loss harvesting (TLH) is a strategy to lower current taxes paid to the U.S. federal government by deliberately selling an investment at a loss—i.e., deliberately taking a capital loss—in order to use that loss to offset taxes owed on an investment sold at a profit—i.e., a capital gain—or even taxes owed on personal income. The investment can be any tradable security (stocks, bonds, shares in an exchange-traded fund) or even cryptocurrencies. Tax-loss harvesting is relevant only for taxable investment accounts—and the benefit is tax deferral—not tax cancellation.

Although the Internal Revenue Service (IRS) allows the deduction of capital losses to offset taxes owed on capital gains, both advocates and critics of tax-loss harvesting agree that it is only appropriate for certain taxpayers in certain scenarios—and both agree that all taxpayers should consult an investment tax professional before attempting TLH.

Advocates position the technique as a hedge against market downturns—a shrewd way to turn a negative into a positive. Critics caution that executing tax-loss harvesting correctly requires expertise and that the strategy can easily backfire—even on investment professionals.

Contact us for a free analysis of your portfolio and an estimate of how tax-loss harvesting may be beneficial to you.