Determining If Tax-Loss Harvesting Is Right for You
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So far this year the markets are broadly down. You likely have unrealized losses in your portfolio. Tax-loss harvesting may be a strategy to consider, but harvesting those losses now could have a negative outcome in the long run. The strategy depends on tax bracket arbitrage: your tax bracket at the time of realizing the loss versus at the time of realizing the future gain.
How Harvesting Works
Realizing capital losses in a year when you have capital gains to offset them can generate current tax savings. Harvesting the loss for tax purposes means selling the investment in order to take the loss and then purchasing the investment back again (more on the wash-sale rules to come).
Tax Impact of Harvesting a $5,000 Loss and Liquidating the Subsequent Gain at the Same Tax Rate
Tax Savings/ Liability
Are You a Candidate for Tax-Loss Harvesting?
|Ideal candidates||Not Ideal candidates|
Tax-loss harvesting can be a good strategy for some investors. Generally, it can be beneficial if there is positive tax bracket arbitrage. It also requires carefully navigating the wash-sale rules. The key here is that tax-loss harvesting requires thoughtful consideration with regard to the overall picture, including current and future tax rates and other circumstances that may be relevant. The goal of this strategy is to provide value, not just tax savings.
About Tina A. Myers
As the Director of Financial Planning for Key Private Bank, Tina is responsible for managing the Central Planning Team, as well as overseeing the National Advisory Committee, Monthly National Advisory Call and any financial planning literature developed internally and externally. She works with our Regional Directors of Planning to help facilitate our best thinking and advice delivery to clients.
Tina earned a B.S. in Bus. Admin. from the Univ. of Richmond and an M.Tax from Virginia Commonwealth Univ. She is a CFP® certificant, CPA/PFS, and is an AEP®. She is Treasurer of the Put-in-Bay Community Swim & Sail Program. Tina received the 2016 Exceptional Service Award from the Cleveland Estate Planning Council and the Circle of Excellence Award by Key Private Bank in 2016 and 2018.