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Loss harvesting tends to get discussed in the context of a specific event. Something is about to drive up your capital gains taxes in a given year, like a business sale, a real estate transaction, or some other large liquidity moment on the horizon.

I am always glad when clients are thinking that way. It means they understand that capital gains planning matters, but there is a real missed opportunity in treating loss harvesting only as a response to a known capital gain. The reality is that if you only begin harvesting when one of these events appears on the near horizon, you’ve likely missed a significant stretch of time where you could have been harvesting losses to prepare.

A few examples we’ve seen:

  1. A business owner waits until 1-2 years before a sale to start preparing their exit plan, leaving only 12-24 months to harvest losses before an 8-figure event.
  2. A family decides within months to move closer to the grandkids and lists their $1.5M home, which they bought for $400,000 over 30 years ago.
  3. An adult child signs for joint ownership of their aging parent’s real estate to avoid estate taxes, but now has to face capital gains without a step-up in basis.

That’s why, for many of our clients, the existence of appreciated assets or businesses suggests that we should be consistently harvesting losses regardless of “how soon” they might be sold or transferred.

A more durable approach is to treat loss harvesting as an ongoing discipline rather than a reactive tactic. We don’t need to have a specific timeline for when we will need the losses to offset income spikes. Currently, under federal tax law, those harvested losses do not expire. They carry forward. They accumulate. Then, when the unexpected gain does arrive, you have a meaningful war chest of harvested losses to help offset your highest income years and brackets.

There is generally minimal downside to carrying forward losses. There can be a meaningful downside to needing them and not having them. Loss harvesting works best when it is part of the process, not part of the reaction.

(A note on portfolio strategy: If done properly and paired with thoughtful reinvestment to maintain the intended exposure, you can realize the tax loss without materially altering the investment strategy.)