Could Tax-Loss Harvesting Benefit You?

As 2025 comes to a close, you may benefit from understanding an investment strategy that focuses on gains and losses in non-retirement accounts. Known as tax-loss harvesting, this strategy seeks to offset investment losses in the current year to offset current or future gains!

What is tax-loss harvesting? 

The strategy of tax-loss harvesting involves selling investments that are down and replacing them with similar, though not identical, assets to minimize taxes on gains in the present. The result? Less of your money goes towards taxes today, and more stays invested, thanks to a lower tax bill come April 15th of the following year!

How can tax-loss harvesting help manage taxes?

You can use an investment loss in two ways:

• To offset investment gains

• To offset $3,000 of income on a joint tax return in one year

Notably, unused losses can be carried forward indefinitely, meaning that claiming losses today could reduce future tax burdens.

What investments should I consider selling with tax-loss harvesting?

When looking for tax-loss harvesting eligible investments to sell, consider ones that no longer fit your goals, have a poor outlook for future growth, or can be easily replaced by other investments that will play a similar role in your portfolio.

Additionally, greater emphasis should be placed on short-term losses, since they are first used to offset short-term gains, which generally are taxed at a higher marginal rate.

Examples of investments one might replace in a portfolio include individual stocks, ETFs, and mutual funds. 

However, it is important to stress that this strategy applies only to after-tax investment accounts, meaning 401(k)s, IRAs, and Roth IRAs are not eligible, since these assets are already tax-deferred or tax-free.

What investments should I buy with tax-loss harvesting?

You should consider replacing your loss-generating investments with a mutual or exchange-traded fund (ETF) that targets the same industry. One thing you’ll want to note and steer clear of is what’s called a “wash sale.” 

The wash-sale rule says that a tax write-off for tax loss harvesting will be denied if you purchase the same investment or a substantially identical investment within 30 days before or after the date you sold the loss-generating investment. This creates a 60-day window that investors must stay out of that exact or a similarly identical investment to qualify for the loss. But the wash sale rule does not apply to similar, non-identical investments.

Time to Act?

If you're interested in implementing a tax-loss harvesting strategy but are unsure how it would work for your portfolio, please give us a call to setup an appointment today. At Lundeen Abrams Advisors, we are here to help.

We regularly help our clients weigh the benefits and drawbacks of various investment strategies, and we are eager to help you understand how implementing a new strategy, like tax-loss harvesting, could work. 

We will look forward to talking with you soon!