Tax Loss Harvesting

Tax-Loss Harvesting

Workflow

Step 1: Identify Candidates

Scan taxable accounts for positions with unrealized losses:

| Security | Asset Class | Cost Basis | Current Value | Unrealized Loss | Holding Period | % Loss |

|----------|-----------|-----------|---------------|-----------------|---------------|--------|

| | | | | | ST / LT | |

Prioritize by:

• Largest absolute loss (biggest tax benefit)
• Short-term losses first (offset short-term gains taxed at ordinary income rates)
• Positions with the largest % loss (less likely to recover quickly)

Step 2: Gain/Loss Budget

Calculate the client's tax situation:

| Category | Amount |

|----------|--------|

| Realized short-term gains YTD | |

| Realized long-term gains YTD | |

| Realized losses YTD | |

| Net gain/(loss) position | |

| Carryforward losses from prior years | |

| Target harvesting amount | |

Tax savings estimate:

• Short-term losses × marginal ordinary income rate
• Long-term losses × capital gains rate
• Up to $3,000 net loss deduction against ordinary income
• Excess carries forward

Step 3: Replacement Securities

For each harvest candidate, suggest a replacement that:

• Maintains similar market exposure (same asset class, sector, geography)
• Is NOT "substantially identical" (wash sale rule)
• Has similar risk/return characteristics

| Sell | Replace With | Reason | Tracking Error Risk |

|------|-------------|--------|-------------------|

| SPDR S&P 500 (SPY) | iShares Core S&P 500 (IVV) | Same index, different fund family | Minimal |

| Vanguard Total Intl (VXUS) | iShares MSCI ACWI ex-US (ACWX) | Similar exposure, different index | Low |

| Individual stock ABC | Sector ETF (XLK) | Broader exposure, no wash sale risk | Moderate |

Step 4: Wash Sale Check

Before executing, verify no wash sales:

• Check ALL accounts in the household (taxable, IRA, Roth, spouse accounts)
• 30-day lookback: Did we buy substantially identical securities in the last 30 days?
• 30-day forward: Block repurchase of the same security for 30 days
• Check for dividend reinvestment plans (DRIPs) that could trigger wash sales
• Document the wash sale window for each trade

| Security Sold | Wash Sale Window Start | Window End | DRIP Active? | Risk |

|--------------|----------------------|-----------|-------------|------|

| | | | | |

Step 5: Execution Plan

| Trade # | Account | Action | Security | Shares | Est. Proceeds | Est. Loss | Replacement | Notes |

|---------|---------|--------|----------|--------|--------------|-----------|-------------|-------|

| | | Sell | | | | | | |

| | | Buy | | | | | | |

Summary:

• Total estimated losses harvested: $
• Estimated tax savings: $ (at marginal rate of %)
• Net portfolio impact: minimal (replacement securities maintain exposure)
• Wash sale window management: [dates]

Step 6: Post-Harvest Tracking

After 30+ days, optionally:

• Swap back to original securities (if preferred)
• Maintain replacement securities (if no reason to switch back)
• Update cost basis records
• Document for tax reporting

Step 7: Output

• Harvest opportunity list (Excel)
• Trade execution sheet
• Wash sale tracking calendar
• Tax savings estimate summary
• Replacement security rationale

Important Notes

• Wash sale rules are strict — violations disallow the loss AND adjust cost basis
• Substantially identical means same security, not same asset class — ETFs tracking different indexes are generally fine
• Always coordinate across all household accounts including retirement accounts
• Consider the long-term cost basis step-down — harvesting resets cost basis, which means more gains later
• Year-end is prime harvesting season but opportunities exist throughout the year
• Mutual fund capital gains distributions in December can create additional harvesting urgency
• Document everything for tax reporting and compliance
• Not all losses are worth harvesting — transaction costs and tracking error have real costs