How to Extend a Tax-Loss Harvesting Strategy
By Brian Famigletti, Managing Director & Head of Marketing
Why Tax-Loss Harvesting Benefits Fade
Tax-loss harvesting is a tried-and-true strategy to help reduce taxes by selling investments at a loss to offset gains elsewhere in a portfolio.
Tax-loss harvesting strategies are key considerations for high-net-worth individuals looking to reduce their tax burden. However, the opportunity set can shrink over time, primarily for two reasons.
First, historically speaking, markets are likely to rise over long periods. As asset values increase, fewer positions sit below their cost basis, or the price at which assets in a portfolio are bought.
Second, harvesting losses can lower a portfolio’s overall cost basis. Replacement investments that perform well increase the spread between purchase price and market value, reducing the pool of securities that can generate future losses. This may result in a gradual decline in tax benefits.
In other words, while tax-loss harvesting remains a crucial strategy for portfolio management, it’s not without its pitfalls. Here are several potential ways to take full advantage of the former, while sidestepping the latter.
Using Cash Contributions to Refresh Losses
Adding cash to investment accounts is one way to extend the life of a tax-loss harvesting strategy.
New contributions create fresh tax lots with higher cost bases. In essence, this resets the portfolio’s baseline in the eyes of the IRS, so that subsequent losses may produce new harvesting opportunities. JPMorgan research finds that contributing 20% of your portfolio’s value in cash per year can lead to a nearly linear increase in potential tax savings over time.
However, when adding cash contributions to a tax-loss harvesting strategy, it’s important to consider cadence. Monthly contributions may increase the risk of wash sale violations, potentially reducing the effectiveness of loss harvesting and limiting trading flexibility.
That said, there is no significant change in potential tax savings between quarterly, semiannual, and annual contributions, per JPMorgan.
Charitable Giving & Gains Management
Charitable giving can also complement a tax-loss harvesting strategy. Donating long-term appreciated securities may allow those who itemize deductions to claim a deduction based on fair market value, while avoiding capital gains taxes that would apply if the asset were sold.
It’s important to note that the charitable giving rules changed in 2026, due to the One Big Beautiful Bill Act, making this strategy slightly less valuable for top-income bracket taxpayers in the new year. Still, it remains a useful consideration for investors looking to maximize tax-loss harvesting.
One more option is to selectively realize long-term gains. Short-term gains are taxed at higher rates than long-term ones. So for those who expect returns in the near-term, such as hedge fund investors, realizing modest long-term gains and reinvesting the proceeds can create new positions, which may in turn generate short-term losses and offset those gains.
With the onset of automation, more and more investors are turning to tax-loss harvesting. Daily monitoring can identify losses quickly and maintain portfolio risk characteristics. But while the process is increasingly simplified, tax-loss harvesting remains complex, and technology cannot fully counter the structural forces working against long-term loss generation.
These strategies can help. But each approach carries its own trade-offs, and any decisions should be evaluated within the context of a broader financial plan. Need help extending the benefits of a tax-loss harvesting strategy? Schedule a call with Griffin Asset Management today.
Source:
JPMorgan: Three ways to extend tax benefits of a loss harvesting strategy
