Such harvesting can be tricky in a generally bullish market that sharply turns to the downside , they say .

“ In a continuously booming market , where asset values are rising , identifying and realizing losses becomes very difficult because fewer investments are likely to be in a loss position ,” says Paul Miller , a CPA and managing partner at Miller & Co . in New York .

One factor in effective loss harvesting is the holding period . “ An active trader can really take advantage of tax-loss harvesting , but the challenge is when an investor has owned a stock for many years ,” says Marc Balcer , senior vice president and director of investment strategy at Girard . “ The stock might be down 50 % year-to-date , but if bought years ago and it ’ s appreciated several hundred percent , it would still have a signifi- cant unrealized gain despite recent losses .”

Tax-loss harvesting is a common investment strategy that allows investors to offset capital gains with capital losses within a current tax year . Excess losses of up to $ 3,000 per year created by the sale of securities can also be carried forward indefinitely . The idea is to sell laggard equities and replace them with better-performing ones . ( Clients do have to be careful to not violate wash-sale rules , which say that 30 days have to pass before repurchasing the same or a substantially similar security after the original one has been sold at a loss .)

This has mostly been a year-end tax move in the past , but the strategy is becoming more popular year-round .

“ Clients who expect to be in a high tax bracket this year but not in future years are particularly suited for tax-loss harvesting ,” says Balcer . “ They can take advantage of the losses when they ’ re going to be taxed at a higher rate .”

Special attention is needed to guide clients

“ Clients who expect to be in a high tax bracket this year but not in future years are particularly suited for tax-loss harvesting .”

— Marc Balcer , Girard through this intricate tax planning . That means advisors should help their clients “ pick a selling point of a stock [ where clients ] can live with the loss and pick a point where you think you may have maximized your gain ,” says James N . Mohs , associate professor of accounting at the University of New Haven in West Haven , Conn . “ Think twice about the reasons you hold the securities [ before ] you issue your sell order .”

Miller says that investors should “ diversify into different asset classes such as bonds , mutual funds and so on , as there may be opportunities present for harvesting losses beyond just stocks . Even in a booming market , there may be individual securities or industries that have lagged .”

Even with “ the narrowness of the market and strength among Magnificent 7 stocks , there are still many companies that have experienced declines so far in 2024 ,” Balcer adds . “ For example , just under 30 % of S & P 500 stocks were down year-to-date through July 30 . And this impact is even larger as you move down in market capitalization . Forty-two percent of the small-cap Russell 2000 constituents have seen declines .”

“ It appears the bond funds are creating losses , so those type of funds may be good candidates for loss harvesting ,” says Larry Pon , a CPA and advisor in Redwood City , Calif .

Unconventional tactics might help a client ’ s tax situation , advisors say .

“ Tax-loss harvesting doesn ’ t eliminate tax liability , just pushes it into the future ,” Balcer says . “ For some investors who may have lower capital gains tax rates in the future as income levels fall in retirement , it may not pay to aggressively harvest losses .

“ Appropriately allocating assets across taxable and tax-efficient accounts can make a major impact ,” he adds . “ This could mean holding taxable bonds in an IRA that holds long-term stock investments in regular taxable accounts . Also valuable is being very thoughtful about spending strategies , especially when in retirement — making

12 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER 2024 WWW . FA-MAG . COM