As the end of the year approaches, now is an appropriate time to consider harvesting your investment losses to offset your gains. Tax-loss harvesting is an effective portfolio strategy allowing investors to sell taxable investment assets-such as individual stocks and exchange traded funds-at a loss to lower tax liabilities and improve portfolio outcomes.

Lessening your tax liability typically occurs in two different ways: offsetting capital gains and reducing federal ordinary income. Investment losses can be used to offset realized short-term and long-term capital gains. In the event capital losses exceed gains, investors can also reduce their federal ordinary income up to $3,000 per year (for married couples, filing jointly) and carry over any additional losses to be used in future years.

Tax-loss harvesting can also be used to help rebalance investment portfolios. Annual realignment to target asset allocation maintains portfolio diversification and improves portfolio outcomes.

As with any tax-related investment strategy, there are certain limitations and rules. For example, the strategy is not applicable for tax-deferred accounts, such as Individual Retirement Accounts, because the loss is not deductible. Also, investors should be mindful of the wash-sale rule. In order to take the tax loss, investors need to wait 30 calendar days before and after the sale of the tax loss security to buy back the same security or a “substantially identical” security. Finally, investors should consider taxes as only part of their investment decision process, and not allow the tax tail to wag the investment dog.

For additional information on tax-loss harvesting, please feel free to contact Peloton Capital Management.



Past performance is no guarantee of future results.  Investing involves risk, including possible loss of principal.  Diversification may not protect against market risk or loss of principal.  The opinions expressed above should be construed as neither investment advice nor a solicitation to buy or sell securities.  Actual investor results may vary.

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