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What is Tax-Loss Harvesting?

Tax-loss harvesting (TLH) is an investment strategy where you sell securities that have declined in value to realize a capital loss for tax purposes. These realized losses can offset capital gains elsewhere in the portfolio, reducing the client’s tax bill. If losses exceed gains, up to $3,000 per year can be deducted against ordinary income, with excess losses carrying forward to future years. The key insight is that you do not leave the market — after selling the losing position, you immediately buy a replacement security with similar (but not identical) market exposure. The portfolio’s risk profile stays essentially the same, but the client saves real money on taxes. This “tax alpha” can add 1-2% annually to after-tax returns. The critical constraint is the wash sale rule: you cannot buy a “substantially identical” security within 30 days before or after the sale, or the loss is disallowed for tax purposes.

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Command

Loads the tax-loss-harvesting skill to scan taxable accounts for harvestable losses, suggest replacement securities, and manage wash sale windows.

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What It Produces

  • Ranked list of harvest candidates (by absolute loss, short-term first)
  • Gain/loss budget and estimated tax savings
  • Replacement security recommendations (similar exposure, not substantially identical)
  • Wash sale calendar (30-day lookback and forward windows across all household accounts)
  • Trade execution plan with estimated proceeds, losses, and replacement buys
Wash sale rules apply across ALL household accounts including IRAs and Roth accounts. Violations disallow the loss AND adjust cost basis. Always coordinate across the full household.

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How to Customize

Edit the tax-loss-harvesting skill to add your firm’s approved replacement security pairs, adjust minimum harvest thresholds, or include firm-specific wash sale tracking procedures. See the Tax-Loss Harvesting skill for the full framework, gain/loss budgeting, replacement security guidance, and wash sale tracking details.