What is tax loss harvesting and is it appropriate for my portfolio?
Tax loss harvesting is an effective strategy for certain investors. It involves selling investments held in taxable accounts at a loss and using cash proceeds to purchase a similar investment in order to maintain your allocation to the particular asset class. By realizing taxable losses and maintaining the planned asset allocation, an investor benefits from lower taxes in the current year (and possibly in future years). This is a strategy that has the potential to significantly improve long-term, after-tax returns. Capital losses can be fully offset against current year capital gains as well as up to $3,000 of ordinary income. Unused losses are carried forward indefinitely. Investors must be careful to follow the wash-sale reinvestment guidelines to take advantage of this strategy.
