Tax loss harvesting isn’t just a year-end task. For high-net-worth families, it’s an ongoing process coordinated with financial advisors as part of a broader set of tax strategies designed to reduce tax exposure and improve portfolio efficiency. By intentionally realizing certain investment losses, investors can offset capital gains or reduce taxable income, potentially lowering their overall tax liability. Here’s how tax loss harvesting helps high-net-worth families maintain tax efficiency year-round.
Monitor for losses year-round
Market ups and downs can feel stressful, but for smart investors, these fluctuations can create opportunities to optimize their portfolios. That’s why advisors regularly keep an eye on portfolios to spot underperforming assets that could be sold to realize a loss. By harvesting these losses, you can offset gains elsewhere, which may lower your tax bill and keep your portfolio working harder for you.
For example, if you made a $30,000 profit from selling Asset A but notice Asset B has declined by $15,000, you may choose to sell Asset B and use that $15,000 loss to help offset the gain. This can potentially reduce your taxable income so that, instead of paying taxes on the full $30,000 profit, you might only owe taxes on $15,000.
Understanding the wash sale rule
Be cautious to not unintentionally cause a “wash sale.” The IRS wash sale rule disallows claiming a tax loss if you buy the same or a substantially identical asset within 30 days before or after selling it at a loss. The purpose is to prevent investors from selling an asset solely to claim a tax benefit and then quickly repurchasing it. If this happens, the loss must be deferred and cannot be deducted immediately. However, you can claim the loss immediately if you sell one stock or security and purchase a different one within the same industry, as long as the new investment is not from the same company.
Portfolio growing through strategic reinvestment
After selling an investment to realize a loss, you’ll want to focus on rebalancing your asset allocation, including proper diversification to maintain your current investment strategy, so that your portfolio stays aligned with your long-term goals and risk tolerance. To do this while following IRS wash sale rules, you can reinvest the proceeds into similar yet not identical assets that fit your overall investment plan.
This approach lets you stay invested and continue growing your portfolio without losing the benefit of the tax loss. Additionally, when you reinvest the tax savings from these losses, those savings can compound over time, potentially increasing the financial benefit.
Harvesting losses with exchange traded funds (ETFs)
ETFs are a popular choice for tax loss harvesting because they offer easy diversification and flexibility. They let you invest in multiple markets and asset categories through a single fund. Instead of buying multiple individual stocks, bonds, or other securities one by one, you can get exposure to a broad mix all at once. This helps spread your risk across different sectors, industries, or asset types without the complexity of managing each holding separately. Additionally, unlike mutual funds, ETFs trade throughout the day, so you can sell one ETF and buy another within the same trading session to seamlessly maintain market exposure.
The role of professional guidance
No one understands your financial situation better than you and your advisor. Advisors provide a range of tailored investment solutions—including tax loss harvesting strategies—that work together to reduce your tax exposure and help you reach your financial goals. An advisor can help you figure out when it makes sense to harvest a loss and when it’s better to hold onto an investment. They take into account your overall tax situation, financial goals, and risk tolerance. With the right planning in place, you are not just reacting to market changes. You are making thoughtful and intentional decisions that support your long-term financial health.
Seeing the bigger picture
For high-net-worth families, tax loss harvesting isn’t just about lowering this year’s taxes. It also plays a role in bigger financial planning conversations. When done carefully and in coordination with your advisor, tax loss harvesting may help improve portfolio efficiency and support broader strategies that can include estate planning, charitable giving, and preparation for major financial events, depending on your unique circumstances. With this approach, you may be able to help preserve and grow your wealth while supporting the goals you’ve set for your family across generations.
Contact your Park City Financial Advisors today for personalized tax strategies designed to keep you tax-efficient and help grow your family’s wealth!
Sources:
https://www.investopedia.com/articles/investing/120115/complete-guide-tax-loss-harvesting-etfs.asp
https://www.morganstanley.com/articles/tax-loss-harvesting
https://investor.vanguard.com/investor-resources-education/taxes/offset-gains-loss-harvesting
https://www.ellevest.com/magazine/tax-loss-harvesting-downturn
