Investing isn’t always a straight ride up. Prices drop and markets wobble. But for long-term investors, those dips can unlock value…not just in your portfolio, but on your tax bill. One of the smartest ways to do that: tax-loss harvesting.
What Tax-Loss Harvesting Means
Tax-loss harvesting involves selling investments in a taxable account when their current value is below what you originally paid. That loss can then offset realized gains from other parts of your portfolio. And in some cases, reduce up to $3,000 of ordinary income each year. If your losses exceed what you can use this year, you can carry them forward for future tax years.
To stay invested and maintain your strategy, the sale proceeds can be reinvested into a similar (but not identical) investment. This preserves your market exposure and keeps your long-term plan on track.
Why It’s More Than “Selling at a Loss”
Tax-loss harvesting isn’t reacting emotionally to market dips. It’s a disciplined strategy that helps you:
- Lower your tax bill by offsetting realized gains or reducing taxable income.
- Stay invested, because you reinvest as part of your strategy.
- Use volatility to your advantage rather than seeing it as purely negative.
Key Things to Watch Out For
The wash-sale rule.
If you sell at a loss and buy the same or a “substantially identical” investment within 30 days before or after the sale, the IRS won’t allow (recognize) the loss. Thoughtful replacement investments help you avoid this issue.
Taxable vs. retirement accounts.
Tax-loss harvesting only works in taxable accounts. Losses in IRAs, 401(k)s, and other tax-deferred accounts don’t offset taxable income.
Short-term vs. long-term holdings.
Short- and long-term gains and losses offset each other differently, and selecting the right tax lot can meaningfully improve after-tax results.
Why a Year-Round Approach Works Best
Opportunities to harvest losses don’t just show up in December. Markets move every day. Monitoring throughout the year gives you more chances to capture strategic losses, refresh tax lots, rebalance efficiently, and better manage gains when they arise.
A More Integrated Way to Manage Wealth
Tax-loss harvesting creates the most value when your advisor, CPA, and other professionals work together. Coordinated planning helps ensure every tax decision aligns with your long-term goals, investment strategy, and cash flow needs.
Let’s Build a Strategy That Fits Your Life
If you’d benefit from a personalized, tax-aware investment approach, Burling Wealth Partners can help. Thoughtful year-round oversight, proactive tax-lot management, and close collaboration with your CPA can help you manage volatility, reduce taxes, and stay aligned with your long-term plan.
Market losses happen. Your tax strategy doesn’t have to be one of them. Let’s connect.
