Tax-loss harvesting, once a strategy employed primarily by wealthy investors and financial advisors, is gaining traction among retail investors thanks to automated investment platforms that handle the process seamlessly. Robo-advisors report that tax-loss harvesting features are now among the most valued capabilities cited by their clients.
The strategy involves selling investments at a loss to offset capital gains elsewhere in a portfolio, reducing the investor's overall tax liability. Automated platforms monitor portfolios daily for harvesting opportunities and execute trades while maintaining target asset allocations through substitute securities.
Tax professionals caution that investors must be aware of wash sale rules, which disallow loss deductions if a substantially identical security is repurchased within 30 days. They also note that tax-loss harvesting is most beneficial for investors in higher tax brackets and those with significant realized capital gains to offset.
