Broker Check

Year- End Tax Loss Harvesting

December 17, 2018

Tax Loss Harvesting is a strategy that involves selling certain investment positions (stocks, bonds, mutual funds, ETFs, etc.) at a tax loss to offset realized capital gains or other taxable income up to the $3,000 limit.

A capital gain is generally realized by the sale of an appreciated asset in a non-retirement account and is taxable in the year the sale occurs. By selling another position at a tax loss, you may be able to take the loss to offset the gain and reduce or eliminate any additional tax.

This could be a very effective tax savings strategy if implemented on time. Taxpayers generally have until the calendar year-end to realize the losses.

It is important to note that tax accounting is different than investment accounting. So it is possible to have a tax loss, which can be harvested, when the investment in question has actually produced a positive rate of return over the holding period. Therefore, it is important to look at the tax gain/loss independently from investment returns to determine if this tax strategy may be beneficial.

It is also important to avoid wash sales. This occurs when an investment is sold to realize the loss and then repurchased within 30 days. In this case the tax loss will be disallowed.