Tax-loss harvesting is a portfolio management technique that systematically sells investments at a loss to offset capital gains — reducing your annual tax bill without materially changing your investment strategy. Here's how it works.
What does this mean for your retirement plan?
TL;DR: Tax-loss harvesting sells investments at a loss to offset capital gains, reducing your annual tax bill. The harvested losses can offset up to $3,000 of ordinary income per year, with excess losses carried forward. The wash-sale rule prohibits repurchasing the same or substantially identical security within 30 days. Professional money management automates this process throughout the year.
What Is Tax-Loss Harvesting?
Tax-loss harvesting is a portfolio management technique that involves selling investments that have declined in value to realize a capital loss. That loss can then be used to offset capital gains elsewhere in your portfolio — reducing your taxable income and annual tax bill.
The harvested losses can offset: (1) short-term capital gains (taxed as ordinary income); (2) long-term capital gains (taxed at preferential rates of 0%, 15%, or 20%); and (3) up to $3,000 of ordinary income per year, with excess losses carried forward to future years.
How Does the Wash-Sale Rule Affect Tax-Loss Harvesting?
The wash-sale rule prohibits you from claiming a loss if you purchase the same or a "substantially identical" security within 30 days before or after the sale. To maintain your desired market exposure while complying with the wash-sale rule, you replace the sold security with a similar (but not identical) investment — for example, replacing one S&P 500 index fund with a different S&P 500 index fund from a different provider.
Why Does Professional Money Management Matter for Tax-Loss Harvesting?
Effective tax-loss harvesting requires continuous monitoring of your portfolio throughout the year — not just at year-end. Professional money managers use technology to identify harvesting opportunities as they arise, ensuring that losses are captured in real time rather than missed.
As a fiduciary, Doug Robb Jr. manages client portfolios with a focus on after-tax returns — not just pre-tax performance. Tax-loss harvesting is one of several tax-aware portfolio management techniques he employs to improve clients' net investment outcomes.
Advisory services are offered through ABC Wealth PR, LLC, a SEC Investment Advisor. This article is for informational purposes only.
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