What are the pros and cons of tax-loss harvesting?
While tax-loss harvesting might appear simple, it really has several moving parts beyond the gains and losses of investments. It's best to know the pros and cons so you can speak to your tax and investment professionals to see if tax-loss harvesting is right for you.
- Potential reduction in capital gains tax liability.
- The ability to make every part of your portfolio—winning and losing positions—work in your favor.
- Ability to use sale proceeds to diversify and rebalance your portfolio to your target asset allocation.
- Single and married filing jointly tax filers can only deduct $3,000 per tax year (married filing separately: $1,500).2
- Need to consider multiple rules, like wash sales3 and cost basis,4 which can make this strategy more difficult to execute successfully.
- Limited to investors with taxable investment accounts (not applicable to qualified accounts like IRAs and other retirement plans).
Should you use tax-loss harvesting?
While this strategy can potentially help you both reduce your tax bill and exposure to risk, taxes shouldn't be the only reason for a financial decision. The best investment and tax strategies involve a regular review of your portfolio with your financial advisor to ensure that your investments are in sync with both your short-term and long-term goals.Talk with your Synovus financial advisor to discuss if tax-loss harvesting is an option for you.