Market fluctuations are inevitable in investing, but smart financial planning strategies can help turn downturns into opportunities. One such strategy—tax loss harvesting—allows you to sell investments that have declined in value to realize a loss.
What Is Tax Loss Harvesting?
Tax loss harvesting involves selling investments that have declined to a value that is lower than the purchase price of the investment held in a taxable account (or non-retirement account.) These losses can then be used to offset capital gains incurred from the sale of other investments and / or up to $3,000 of ordinary income each year. Unused Capital losses can be carried forward to future years indefinitely.
Having Capital Losses can be a valuable tool to minimize annual taxes and provide flexibility to manage your portfolio. The strategy can help rebalance portfolios, exit highly appreciated positions, and manage tax brackets more effectively.
The Mechanics of Tax Loss Harvesting
ETFs Make It Easy and Low-Cost
A major reason tax loss harvesting has become more accessible is the reduction of trading costs for individual stocks, ETF’s and the increase use of technology. The popularity of exchange-traded funds (ETFs) has provided an opportunity to maintain a diversified portfolio and recognize losses These investment vehicles offer an efficient, low-cost way to implement diversification and tax strategies.
ETFs trade like individual stocks, which means they can be bought or sold at market prices throughout the trading day. This flexibility allows us to be nimble with tax loss harvesting and take advantage of market dips. In terms of cost, ETFs are particularly attractive—many brokerage custodians no longer charge transaction fees for ETF trades and they typically are managed with lower internal expense ratios
Avoiding the Wash Sale Rule
If you sell an investment to harvest a loss, you can’t buy the same—or a substantially identical—security within 30 days before or after the sale. Doing so would violate the IRS’s wash sale rule and disqualify the loss. To stay compliant, you might sell one S&P 500 ETF and replace it with another from a different fund provider.
Why Timing Matters—And Why It Doesn’t
Many investors think of tax loss harvesting as a December-only activity, but it’s actually a year-round opportunity. Technology has made it easy to scan for losses in real-time and look for opportunities throughout the year—especially during volatile markets. By identifying losses as they occur, we can act swiftly to reinvest and position the portfolio to recover with a lower cost basis. This also builds up a “bank” of losses that can be used to offset future gains, whether for rebalancing, strategic withdrawals, or transitioning out of concentrated positions.
Tax Loss Harvesting in Action
Tax loss harvesting can serve multiple purposes within a broader financial strategy beyond simply reducing a year-end tax bill. At Curio Wealth, we use it to enhance flexibility and improve outcomes in several key areas:
Rebalancing Portfolios
Market movements can cause portfolios to drift from their intended asset allocation, often leaving investors overweight in certain sectors or asset classes. Rebalancing helps restore that balance, but doing so may involve selling investments that have gained in value—potentially triggering taxable gains. By harvesting losses in other parts of the portfolio at the same time, we can help offset those gains, allowing clients to realign their portfolios without incurring significant tax costs.
Exiting Highly Appreciated Positions
Clients sometimes come to us with concentrated positions in a single stock—often accumulated through an employer stock purchase plan over many years. For example, someone who worked at Amazon might own shares purchased for $50,000 that have grown to $500,000. Selling that stock outright would incur substantial capital gains taxes. But if we can identify a loss elsewhere in the portfolio—say, from a declining stock or ETF—we can realize that loss and use it to offset some of the gain from selling Amazon. This allows us to reduce single-stock risk and diversify the portfolio more tax-efficiently.
Managing Tax Brackets More Effectively
Tax loss harvesting can also help smooth out taxable income across years. By realizing losses in higher-income years, we can reduce overall taxable income and potentially avoid bumping into a higher marginal tax bracket. This is especially useful for retirees who have more control over their income in early retirement years. For example, realizing losses now may allow them to recognize capital gains or convert IRA assets to Roth accounts later—while staying within favorable tax thresholds and avoiding Medicare surcharges or higher Social Security taxation.
Who Benefits from Tax Loss Harvesting?
Tax loss harvesting can be a valuable tool for investors at nearly every stage of life. Whether in your 30s or planning for or enjoying retirement, harvested losses give you more options—and more control—when managing taxes.
Building and Planning Life
Investors in the building and planning phase usually focus on growing their wealth through long-term stock exposure. Because their income is often rising and they’re accumulating assets in taxable accounts, harvesting losses can help offset capital gains from investment sales. These realized losses also carry forward indefinitely, creating a “bank” of future tax offsets that can be extremely useful in high-income years or when they eventually begin rebalancing large portfolios.
Thriving in Midlife
For professionals at the peak of their careers, tax loss harvesting becomes a strategic tool for managing tax exposure as they begin to plan for retirement and shift from growth-oriented investing to more conservative allocations. Many clients in this stage start diversifying out of concentrated stock positions or transitioning toward fixed income, which can generate capital gains. Realized losses can offset these gains, helping to reduce the tax cost of rebalancing or reallocating a portfolio.
Living a Modern Retirement
Investors thriving in retirement, often rely on their portfolios for income and are more susceptible to tax-related ripple effects—from Medicare premium surcharges to taxation of Social Security benefits. For retirees, especially, it’s not just about the investment—it’s about pulling income in the most tax-efficient way possible. Harvesting losses gives us one more lever to pull. Once the ‘portfolio paycheck’ starts, and during years where those distributions are higher harvesting losses can help offset capital gains and allow for tax-efficient withdrawals.
The Curio Wealth Approach to Tax Loss Harvesting
At Curio Wealth, we integrate tax planning directly into our investment process. We routinely review portfolios to evaluate opportunities based on current market value versus cost basis.
“Most advisors would say go talk to your tax advisor about this. As CPAs, we’ve thought about it, we know about it, and we can think about it when we’re making decisions about your portfolio. Taxes are always top of mind for us, and that’s where we believe we add tremendous value.”
Beyond investments, tax considerations influence many financial decisions—from Social Security taxation to Medicare premiums to qualified charitable distributions. At Curio Wealth, tax loss harvesting is just one tool among many in our broader tax-aware financial planning approach.
Ready for a Smarter Tax Strategy?
Whether you’re building wealth, preparing for retirement, or already living off your investments, tax loss harvesting can play a key role in your financial plan. If you’re not sure whether you’re taking full advantage of it, we’d be happy to help. Let’s make your portfolio—and your taxes—work smarter, together.
