Tax-Loss Harvesting for High-Net-Worth Investors

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Tax-Loss Harvesting for High-Net-Worth Investors: Why Year-Round Tax Management Matters

For high-net-worth investors, investment returns are only part of the equation. 

What you keep after taxes matters.

Tax-loss harvesting can be an effective way to improve the tax efficiency of a portfolio by strategically realizing investment losses that may offset realized capital gains. But effective tax-loss harvesting involves much more than reviewing a portfolio in December and selling investments that happen to be down.

At Di Bello Financial, we believe tax-loss harvesting should be considered as part of ongoing investment management throughout the year. Investment decisions come first, but when a portfolio change also creates a meaningful tax opportunity, the two should be evaluated together.

What Is Tax-Loss Harvesting?

Tax-loss harvesting involves selling an investment for less than its tax basis and realizing the resulting capital loss.

Those losses can generally be used to offset capital gains elsewhere in the portfolio. If total capital losses exceed capital gains, individuals may generally deduct up to $3,000 of net capital losses against ordinary income each year, with unused losses carried forward to future tax years under current federal tax rules. (irs.gov)

For a high-net-worth investor with substantial taxable assets, however, the real value of tax-loss harvesting often extends well beyond the current year’s tax return.

Harvested losses may become a tax asset that can potentially be used against future gains when the portfolio needs to be repositioned, a concentrated investment needs to be reduced, or other appreciated assets are sold.

Why Waiting Until December Can Be a Mistake

Tax-loss harvesting is often associated with year-end tax planning.

Markets don’t operate on a tax calendar.

An individual stock, sector or asset class may decline substantially during February, May or September and recover before December. If the portfolio isn’t being evaluated for tax opportunities throughout the year, that temporary loss may disappear before traditional year-end planning begins.

Consider a hypothetical stock purchased for $100,000 that falls temporarily to $75,000.

If the investment thesis has changed, or another investment provides a more attractive risk/reward opportunity, selling could realize a $25,000 capital loss while allowing the portfolio to be repositioned.

If the stock subsequently recovers to $100,000 before year-end, the opportunity to realize that loss is gone.

This is why we view tax-loss harvesting as an ongoing portfolio-management consideration rather than a year-end tax exercise.

Individual Securities Can Create More Tax-Management Opportunities

One reason Di Bello Financial uses individual stocks extensively in client portfolios is the additional control they can provide.

Suppose an equity portfolio owns 40 individual companies. The overall portfolio may have appreciated significantly during the year while several individual holdings have declined.

Those individual positions may create tax-management opportunities even though the portfolio itself has performed well.

An investor holding only a broad-market fund has much less ability to isolate the performance of individual securities. If the fund has appreciated, losses occurring among individual companies inside the fund generally cannot be harvested separately by the shareholder.

Direct ownership can therefore provide greater flexibility.

That does not mean we sell an investment simply because it has declined. The investment thesis still matters.

A loss can sometimes provide an opportunity to accomplish two objectives simultaneously:

improve the portfolio and improve its tax position.

Harvesting Losses to Offset Portfolio Gains

Active portfolio management inevitably produces realized gains.

We may trim a stock after significant appreciation, sell a company when its investment thesis deteriorates, reduce an overly concentrated position, or reallocate capital toward an investment with a more attractive outlook.

Those decisions can create taxable capital gains.

Tax-loss harvesting elsewhere in the portfolio may help offset some of those gains.

For example, assume an investor realizes a $75,000 long-term capital gain after reducing an appreciated investment. If another portfolio position has a $30,000 unrealized loss and selling that investment also makes sense from an investment perspective, realizing the loss could potentially reduce the investor’s net capital gain to $45,000 before considering other transactions and applicable tax rules.

The important point is that the loss should not dictate the investment decision.

If we continue to believe strongly in an investment’s long-term prospects, realizing a loss solely for tax purposes may not be the best decision.

Taxes matter, but taxes should not control the portfolio.

Capital-Loss Carryforwards Can Be Valuable

A harvested loss does not necessarily need to be used immediately.

Under current federal tax law, unused net capital losses can generally be carried forward to future tax years until used. (irs.gov)

For high-net-worth investors, accumulated capital-loss carryforwards can provide valuable flexibility.

They may help offset future gains generated by:

• portfolio rebalancing;
• reducing a concentrated stock position;
• selling appreciated investments to fund retirement spending;
• changing an investment strategy;
• diversifying inherited or long-held assets;
• funding a major purchase; or
• repositioning a taxable portfolio following a change in circumstances.

This is why we don’t necessarily view an unused capital loss as wasted.

It can represent future tax capacity.

Tax-Loss Harvesting and Concentrated Stock Positions

Tax-loss harvesting can become particularly useful when an investor holds a highly appreciated concentrated position.

Selling a large position all at once may generate substantial capital gains. Yet continuing to hold an oversized position indefinitely simply to avoid taxes can expose the investor to significant company-specific risk.

Losses elsewhere in the portfolio may provide an opportunity to offset part of the gain created as the concentrated position is gradually reduced.

This can be incorporated into a multiyear diversification strategy.

Rather than looking at each investment independently, we can consider the taxable portfolio as a whole:

Where do we have gains? Where do we have losses? Which positions should be increased, reduced or eliminated? And how can those decisions work together tax-efficiently?

This is one of the advantages of integrating tax planning directly with investment management.

The Wash-Sale Rule Requires Careful Coordination

Tax-loss harvesting also requires attention to the wash-sale rules.

Generally, a loss may be disallowed when an investor sells a stock or security at a loss and acquires substantially identical stock or securities within the period beginning 30 days before and ending 30 days after the sale. The rules can also apply to certain options and contracts. (irs.gov)

Importantly, the analysis isn’t necessarily confined to one brokerage account.

For example, the IRS specifically states that acquiring substantially identical securities in an IRA or Roth IRA during the applicable period can trigger wash-sale treatment. Transactions involving a spouse may also matter. (irs.gov)

This makes household-level coordination important.

An investor could sell a security for a loss in an individual taxable account while an automatic investment, dividend reinvestment or transaction elsewhere creates an unintended wash sale.

Tax-aware portfolio management therefore requires visibility across accounts rather than simply examining each account independently.

Why We Don’t Automatically Harvest Every Loss

A portfolio showing an unrealized loss does not automatically mean that investment should be sold.

There can be legitimate reasons to continue holding it.

We consider questions such as:

Has the investment thesis changed?

Is the current price attractive relative to our estimate of long-term value?

Do we have a better investment opportunity for the capital?

How significant is the potential tax benefit?

Would selling alter the portfolio’s desired exposure?

Could the position rebound significantly while we are out of it?

Would the transaction create a wash-sale issue elsewhere?

A tax benefit is valuable only in the context of the overall investment decision.

Selling a high-conviction investment at the wrong time simply to generate a tax deduction can be counterproductive.

Tax-Gain Harvesting Can Matter Too

Tax-aware investing isn’t exclusively about realizing losses.

There are circumstances when intentionally realizing capital gains may also make sense.

An investor may temporarily be in a lower tax bracket. A retired client may have an unusually low-income year before required distributions begin. A business owner may experience a significant change in taxable income. Existing capital-loss carryforwards may also provide an opportunity to realize gains with reduced current tax consequences.

In those circumstances, realizing gains intentionally can potentially reset the tax basis of investments and provide greater flexibility in future years.

This illustrates an important principle:

The objective isn’t to minimize taxes in one particular year. The objective is to manage taxes intelligently over time.

Tax-Loss Harvesting Across the Entire Household

High-net-worth families frequently have multiple investment accounts:

taxable brokerage accounts, IRAs, Roth IRAs, trusts, employer retirement plans, inherited accounts and sometimes accounts held at multiple financial institutions.

Tax management becomes more effective when those assets are considered together.

For example, a transaction that makes perfect sense within one taxable account could create an unintended consequence because of activity occurring in another account.

Likewise, a capital loss generated in one portfolio may affect the decision to realize a gain somewhere else.

This is why we believe investment management, asset location, tax-loss harvesting, withdrawal planning and capital-gain management should not operate independently.

They are different parts of the same financial picture.

Tax Efficiency Should Support the Investment Strategy

There is an important distinction between tax-aware investing and allowing taxes to dictate investment decisions.

Avoiding a capital gain is not automatically a successful outcome.

Holding an increasingly risky investment indefinitely because selling would create a tax liability can eventually cost considerably more than the tax itself.

Similarly, selling an attractive long-term investment simply because it has temporarily declined may sacrifice future returns for a relatively modest current tax benefit.

Our approach is to start with the investment decision:

What should we own?

What should we sell?

What should we trim?

Where should new capital be invested?

Then we consider how those decisions can be implemented as tax-efficiently as reasonably possible.

Integrating Tax Strategy With Investment Management

At Di Bello Financial, investment management and tax planning are intentionally integrated.

As a fee-only Registered Investment Advisor led by a CPA/PFS and CFP® professional, we evaluate investment decisions with an understanding of how those decisions can affect a client’s broader tax picture.

That may include coordinating:

• tax-loss harvesting;
• capital-gain realization;
• asset location;
• concentrated-stock diversification;
• Roth conversions;
• charitable giving;
• retirement distributions;
• portfolio withdrawals; and
• multiyear tax planning.

For high-net-worth investors, these decisions can interact in ways that are easy to overlook when investments and taxes are managed separately.

The Bottom Line

Tax-loss harvesting can be a valuable tool, but it is not simply about finding losing investments in December.

Effective tax-loss harvesting requires understanding the portfolio, the investor’s tax situation, existing gains and losses, future liquidity needs, other household accounts, wash-sale considerations and—most importantly—the investment outlook for the securities involved.

Used thoughtfully, harvested losses can provide flexibility for future portfolio decisions and help reduce the tax friction associated with managing taxable wealth.

But the investment strategy should remain the foundation.

We believe the best approach is not to manage investments for taxes. It is to manage investments intelligently while incorporating taxes into every decision where they matter.

High-Net-Worth | Tax Strategy | Home | How We Build Tax-Efficient Investment Portfolios | Why We Use Individual Stocks | How We Allocate Client Portfolios | Tax Planning Scenarios | Fees

About the Author

Annette Di Bello, CPA/PFS, CFP® is the Founder and President of Di Bello Financial, a fee-only Registered Investment Advisor headquartered in Mission Viejo, California.

With nearly four decades of progressive experience in accounting, taxation, financial planning, and investment management, Annette helps high-net-worth individuals and families, business owners, executives, physicians, and retirees coordinate investment decisions with tax strategy and long-term financial planning.

As a Certified Public Accountant (CPA) with the Personal Financial Specialist (PFS) credential and a CERTIFIED FINANCIAL PLANNER® professional, Annette brings an integrated perspective to portfolio management, retirement planning, tax strategy, estate planning coordination, and wealth preservation.

Di Bello Financial serves clients throughout Orange County, Los Angeles County, San Diego County, and other states where permitted by law.

Important Disclosure: The investment allocations and portfolio characteristics discussed above represent approximate aggregate firm-wide exposures as of August 28, 2026 and are provided solely to illustrate Di Bello Financial’s general investment approach. They do not represent an individual client portfolio, model portfolio, composite, target allocation, performance presentation, or recommendation to buy or sell any security. Individual client portfolios may differ materially based upon each client’s investment objectives, risk tolerance, time horizon, liquidity needs, tax circumstances, account type, and other relevant considerations. Portfolio allocations, securities, and investment strategies are subject to change without notice. Tax strategies and their effectiveness depend upon individual circumstances and applicable tax law; Di Bello Financial does not guarantee any particular tax result. References to investment themes, emerging technologies, or industries are illustrative of areas the firm may research and do not constitute recommendations or assurances that such investments will be profitable. Investing involves risk, including the possible loss of principal.