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When to employ: Before you consider tax-loss harvesting, you should be aware of the wash sale rule. It imposes a 30-day look back and a 30-day look forward period, which prevents the recognition of a capital loss if a substantially identical asset is bought within that time frame. With this in mind, tax-loss harvesting is worth considering in the following scenarios:

📌 To offset a significant capital gain from selling a business or second home, reducing taxable income.

📌 To offset up to $3,000 in annual earned income, utilizing tax-rate arbitrage to save on taxes.

📌 To diversify from over-concentration in a particular asset, reducing capital gains tax while reallocating the portfolio.

When to avoid: There are also less effective uses of tax-loss harvesting, such as in the case of zeroing out gains in your portfolio. Doing so may not provide a net tax benefit and merely postpone the inevitable taxes to a future year. Further, downsides to tax-loss harvesting include: The requirement for losses to negate gains first, potentially leading to wasted losses if not carefully planned. Additionally, if you pass away with unused tax losses, the opportunity disappears.

Tax-loss harvesting is an incredibly powerful wealth-building tool when used properly, but it must be done intentionally. At Howard Bailey, we can build you a customized tax-loss harvesting strategy to create tax alpha for your wealth.