What is tax-loss harvesting, and how does PortfolioPilot help with it?
Tax-loss harvesting (TLH) is the strategy of selling investments that have declined in value to realize a loss, which can then be used to offset capital gains elsewhere in your portfolio - reducing your overall tax bill for the year.
A simple example: You bought $10,000 of XYZ fund. It's now worth $7,500. If you sell it, you realize a $2,500 loss. That loss can offset $2,500 of gains you've made elsewhere - saving you potentially hundreds of dollars in capital gains tax. You can then immediately buy a similar (but not "substantially identical") fund to maintain your market exposure.
How PortfolioPilot helps (Gold and above):
- Continuously scans your portfolio year-round for tax-loss harvesting opportunities - not just at year-end
- Analyzes positions lot-by-lot (individual purchase lots, not just current value) for the most accurate opportunity detection
- Shows the estimated tax impact of any proposed sale before you act
- Flags potential wash-sale situations (where buying a substantially identical security within 30 days would invalidate the loss)
- Tracks your YTD realized gains and losses so you can see where you stand throughout the year
Important to know:
- TLH only applies to taxable brokerage accounts - not IRAs, 401ks, or other tax-sheltered accounts (where there's no capital gains tax to offset)
- TLH does not eliminate tax - it defers it. When you eventually sell the replacement position, the lower cost basis will result in a larger gain
- For complex situations, consult a tax advisor - PortfolioPilot provides the analysis tools, not personalized tax advice
