Is Tax loss harvesting worth it?

[scorcher31]

I have 2 questions regarding tax loss harvesting?

1. Is there even a benefit to it if my expect my retirement/future tax rate to be the same or higher and I am lower the basis?

2. My brokerage is in vanguard. If I transfer everything from VTSAX (told us stocks) for VFIAX(sp500) on the vanguard site will i miss out on a potential day of loss/gains? If the market goes up like 2% in the day I'm trading and I miss it then it might be more than enough to negate any gains.

Appreciate the thoughts so I am ready to make ad decision in the event market continues to drop. It's something I never fully understood.

[Fishing50]

1. You deduct losses at your marginal tax rate, and pay 15% capital gains taxes if you sell the securities.
If you don't sell, you don't pay the capital gains taxes. Dividends earned are taxed 15%.

2. If you exchange between mutual funds, you will be invested all day.
With ETFs, you’ll need to sell and buy in separate transactions.

[southernlucky]

Hi op. I’ve done it many times myself. I thought it worthwhile. Be sure to read wiki below. Losses first offset any gains in the same year and any excess losses carry forward to future years against future gains until fully consumed. If no gains to offset then you can use $3000 of losses to offset normal income each year. I know TurboTax and likely other tax software keeps track of carry forward losses too.

The nice thing about using Vanguard and their mutual funds vs ETFs is they perform exchanges overnight so you would not be out of the market. You have fund A on day 1 and then wake up on day 2 with fund B. Easy peasy.

https://www.bogleheads.org/wiki/Tax_loss_harvesting

[livesoft]

2. If you exchange between mutual funds, you will be invested all day.
With ETFs, you’ll need to sell and buy in separate transactions.

With ETFs one can also buy first, then sell, The transactions can be within milliseconds of each other as well, so one will not be "out of the market" at all. But the transactions don't have to be done at the same time if one doesn't want them to happen at the same time.

Based on more than a decade of answering TLH questions on bogleheads.org, the principal thing I see is the anxiety of people who haven't done TLH and the relief of people who finally did it and reported that it was so easy.

[WalkingBackToHouston]

I have 2 questions regarding tax loss harvesting?

1. Is there even a benefit to it if my expect my retirement/future tax rate to be the same or higher and I am lower the basis?

2. My brokerage is in vanguard. If I transfer everything from VTSAX (told us stocks) for VFIAX(sp500) on the vanguard site will i miss out on a potential day of loss/gains? If the market goes up like 2% in the day I'm trading and I miss it then it might be more than enough to negate any gains.

Appreciate the thoughts so I am ready to make ad decision in the event market continues to drop. It's something I never fully understood.

good read below. important if you are considering TLH:
https://www.kitces.com/blog/evaluating- ... arvesting/

[livesoft]

good read below. important if you are considering TLH:
https://www.kitces.com/blog/evaluating- ... arvesting/

It is articles like the Kitces one above that help sow fear, uncertainty and doubt. Instead of leading off that one may save more than 25% now and pay 0% later, he leads off with save little now and pay more later. Of course, everyone's tax situation is different and some people will not benefit as much as others, but it is not like Kitces hints at for most investors.

[WalkingBackToHouston]

good read below. important if you are considering TLH:
https://www.kitces.com/blog/evaluating- ... arvesting/

. . . everyone's tax situation is different and some people will not benefit as much as others . . .

this part is very important point and i wholeheartedly agree. thanks!

[toddthebod]

I have 2 questions regarding tax loss harvesting?

1. Is there even a benefit to it if my expect my retirement/future tax rate to be the same or higher and I am lower the basis?

2. My brokerage is in vanguard. If I transfer everything from VTSAX (told us stocks) for VFIAX(sp500) on the vanguard site will i miss out on a potential day of loss/gains? If the market goes up like 2% in the day I'm trading and I miss it then it might be more than enough to negate any gains.

Appreciate the thoughts so I am ready to make ad decision in the event market continues to drop. It's something I never fully understood.

You have something like 15 years between now and retirement in which to deduct $3,000/year from income by tax loss harvesting. I have been carrying forward tens of thousands of dollars of losses.

The Kitces article is just plain wrong. The worst case scenario would be for Congress to change the laws such that your capital gains rates are higher than the ordinary income rates you have been saving against along the way. If this were to happen, you can undo your tax loss harvesting instantaneously by tax gain harvesting before those new rates took effect. Unless you think Congress would retroactively increase tax rates, or you just stop paying attention, there is no way to end up worse off by tax loss harvesting. Even if you were to save at long term capital gains now and pay more capital gains later, the time value of money means that was a benefit to you.

In my personal case, my annual DAF contributions come from shares that were harvested, so I have permanently locked in the benefit for at least some of the shares.

Edit: I just read the entire article. So disappointing. He literally characterizes an annual deduction of ordinary income of $3,000/year as of no economic benefit. Wow.

[southernlucky]

Hi op. I’ve done it many times myself. I thought it worthwhile. Be sure to read wiki below. Losses first offset any gains in the same year and any excess losses carry forward to future years against future gains until fully consumed. If no gains to offset then you can use $3000 of losses to offset normal income each year. I know TurboTax and likely other tax software keeps track of carry forward losses too.

The nice thing about using Vanguard and their mutual funds vs ETFs is they perform exchanges overnight so you would not be out of the market. You have fund A on day 1 and then wake up on day 2 with fund B. Easy peasy.

https://www.bogleheads.org/wiki/Tax_loss_harvesting

Edit:
Forgot to mention be sure to avoid using same fund being sold in another account with transactions within +/- 30 days of taxable account sale to avoid any wash sale misstep. See below wiki:

https://www.bogleheads.org/wiki/Wash_sale

[dwickenh]

Yes, it is worth it.

[Florida Orange]

I would rephrase the question. Is it worth it to sell at a loss just you can tax loss harvest, or is tax loss harvesting merely something that mitigates the damage if you have to sell at a loss anyway?

[Flobes]

Is there even a benefit to it if my expect my retirement/future tax rate to be the same or higher...?

Starting a 1040 with minus $3000 can be very helpful/rewarding when you are dancing on AGI/MAGI line for garnering particular tax credits, avoiding cliffs, and limboing under some phaseout limits.

[intendi]

The $3000 deduction has helped my dear mom narrowly avoid an IRMAA surcharge the last 5 years or so.

[Billionaire]

I'm mixed on tax loss harvesting. Maybe not even mixed, just against it in principle. We have one account that is set up for it and I'll probably remove the feature soon. Tax loss harvesting can make calculating estimated quarterly payments tricky. For example, in 2024 we had no securities that had a loss, so no sales were made in December. I tried making a larger 4th quarter estimated tax payment, but Turbo Tax is adding a penalty due to us not making consistent payments.

[grabiner]

1. Is there even a benefit to it if my expect my retirement/future tax rate to be the same or higher and I am lower the basis?

Three benefits:

You can take $3000 per year against ordinary income, then pay $3000 later in capital-gains tax at a lower rate.
Postponing tax allows you to keep money invested; saving $1000 in tax this year to pay $1000 in tax in twenty years is a net gain.
You may never sell the replacement shares; you might donate them to charity, or leave them to your heirs.

2. My brokerage is in vanguard. If I transfer everything from VTSAX (told us stocks) for VFIAX(sp500) on the vanguard site will i miss out on a potential day of loss/gains? If the market goes up like 2% in the day I'm trading and I miss it then it might be more than enough to negate any gains.

A mutual-fund-to-mutual-fund exchange happens at the closing price of both funds, so you stay fully invested.

With ETFs, you can sell one ETF and immediately buy another with the proceeds, staying fully invested except for the few minutes between orders.

If you sell an ETF to buy a mutual fund, you will be out of the market for a day because you cannot buy a mutual fund until the ETF trade settles.

If you sell a mutual fund to buy an ETF, you can avoid being out of the market if your brokerage allows you to purchase the ETF with unsettled funds from the mutual fund sale.

[grabiner]

I would rephrase the question. Is it worth it to sell at a loss just you can tax loss harvest, or is tax loss harvesting merely something that mitigates the damage if you have to sell at a loss anyway?

You should sell to tax loss harvest even if you do not need to sell; as long as you stay invested, your total after-tax returns will be better if you harvest your losses.

[firebirdparts]

I would rephrase the question. Is it worth it to sell at a loss just you can tax loss harvest, or is tax loss harvesting merely something that mitigates the damage if you have to sell at a loss anyway?

Clearly it's not the latter. I don't have any idea how you came up with that, but clearly no to the latter.

As for the former, "worth it" questions are hard. In an example where you reinvest in something similar, you are creating a tax deduction now and trading off with higher tax liability later. That may or may not be worth it.

[bertilak]

I would rephrase the question. Is it worth it to sell at a loss just you can tax loss harvest, or is tax loss harvesting merely something that mitigates the damage if you have to sell at a loss anyway?

Clearly it's not the latter. I don't have any idea how you came up with that, but clearly no to the latter.

As for the former, "worth it" questions are hard. In an example where you reinvest in something similar, you are creating a tax deduction now and trading off with higher tax liability later. That may or may not be worth it.

If you MUST sell (at a loss or otherwise) that implies you will have no money available to reinvest. At least you get to claim any loss on your taxes.

[Florida Orange]

I would rephrase the question. Is it worth it to sell at a loss just you can tax loss harvest, or is tax loss harvesting merely something that mitigates the damage if you have to sell at a loss anyway?

Clearly it's not the latter. I don't have any idea how you came up with that, but clearly no to the latter.

As for the former, "worth it" questions are hard. In an example where you reinvest in something similar, you are creating a tax deduction now and trading off with higher tax liability later. That may or may not be worth it.

I'm not so sure about that. Leaving aside the $3,000 offset against ordinary income, tax loss harvesting is really tax postponement to a future date when you expect to be in a lower tax bracket. The problem is that if, during the years when you're working and investing, you constantly tax loss harvest as you go, then in retirement you will be left with nothing but tax lots with a lot of capital gains. Whether that strategy will turn out to have been worth it seems to me to be almost impossible to predict.

[toddthebod]

Clearly it's not the latter. I don't have any idea how you came up with that, but clearly no to the latter.

As for the former, "worth it" questions are hard. In an example where you reinvest in something similar, you are creating a tax deduction now and trading off with higher tax liability later. That may or may not be worth it.

I'm not so sure about that. Leaving aside the $3,000 offset against ordinary income, tax loss harvesting is really tax postponement to a future date when you expect to be in a lower tax bracket. The problem is that if, during the years when you're working and investing, you constantly tax loss harvest as you go, then in retirement you will be left with nothing but tax lots with a lot of capital gains. Whether that strategy will turn out to have been worth it seems to me to be almost impossible to predict.

First, you can't leave aside the $3,000 offset against ordinary income. That's a substantial benefit.

Second, tax loss harvesting is not a tax postponement, as the alternative is not selling which would not incur any tax. Tax loss harvesting enables a postponement from a subsequent sale at a future date. Let's say in a bad case of timing you postpone a 15% taxation and actually make the sale at a 23.8% rate, it would only take 5 years of average growth of the S&P 500 for that to be a net profit.

It requires a fairly convoluted and unlikely set of circumstances for tax loss harvesting to result in the payment of more tax less after-tax income.

[alfaspider]

I would rephrase the question. Is it worth it to sell at a loss just you can tax loss harvest, or is tax loss harvesting merely something that mitigates the damage if you have to sell at a loss anyway?

What you are describing isn't what BH mean when they say "tax loss harvesting." In a TLH situation, you are remaining fully invested in an investment that is economically equivalent (or very nearly so) to the original investment but different enough to be considered a different investment for tax purposes. The trades are made to execute immediately after each other so there is no time out of the market. This allows recognizing what is effectively an unrealized loss.

The classic example is selling shares of VTI (total stock market) and buying VOO (S&P 500). They aren't tax identical because the funds contain a different basket of stocks, but very strongly correlated economically. The only potential downside is if TLH partners fail to keep the strong correlation expected of them. It would be extremely unlikely for TLH to result in additional tax paid in the aggregate when factoring the time value of money and the fact that you can use some of the loss against your ordinary income.

[beyou]

Besides the annual $3k loss against income, I have also benefited in making it possible to do tax free changes to my asset allocation.

Want to rebalance out of bonds or stocks at a gain, no problem if you have past losses carried forward.
Want to swap from munis to taxable bonds when your income drops, no problem if you have past losses carried forward.

There is literally no downside to TLH that I can see, only upside that you may take some time to utilize.
But you have to take the losses when you can, and then benefit from them when you can.
Unpredictable when this is feasible and useful, but useful to do when you have the opportunity, no doubt.

[Florida Orange]

Let's say in a bad case of timing you postpone a 15% taxation and actually make the sale at a 23.8% rate, it would only take 5 years of average growth of the S&P 500 for that to be a net profit.

By tax loss harvesting you are resetting the cost basis to a lower level. Therefore when you eventually sell, a greater percentage of the value of the shares is taxable capital gain. Assuming that you sell in retirement when you are in a lower tax bracket than you were when you were working, your tax is then a lower percentage on a greater number of dollars. That might work to your advantage or it might not. Barring extreme events in the stock market, it seems to me that in most cases it would be pretty close to break-even.

[Florida Orange]

It would be extremely unlikely for TLH to result in additional tax paid in the aggregate when factoring the time value of money and the fact that you can use some of the loss against your ordinary income.

The offset against ordinary income is an advantage and keeping the money invested rather than giving it to the IRS is an advantage. The disadvantage is that you are effectively lowering the costs basis of the tax lots so that when do you eventually sell for a taxable gain more of the value of the shares is taxable. Whenever you decide to sell, you're going to pay capital gains tax on the difference between sale price and the cost basis. Delaying paying taxes is not a bad thing, but that's essentially what tax loss harvesting is.

[toddthebod]

Let's say in a bad case of timing you postpone a 15% taxation and actually make the sale at a 23.8% rate, it would only take 5 years of average growth of the S&P 500 for that to be a net profit.

By tax loss harvesting you are resetting the cost basis to a lower level. Therefore when you eventually sell, a greater percentage of the value of the shares is taxable capital gain. Assuming that you sell in retirement when you are in a lower tax bracket than you were when you were working, your tax is then a lower percentage on a greater number of dollars. That might work to your advantage or it might not. Barring extreme events in the stock market, it seems to me that in most cases it would be pretty close to break-even.

If you break even on the taxes, you have come out substantially ahead. What's worth more, $10,000 today or $10,000 in 20 years?

Also, I have already gifted shares to my DAF. I did not postpone taxes, I will never pay taxes on those shares. Same if I keep them until I die.

Also, I am deducting $3,000/ year at 33% or so marginal rate. That's $1,000/year in tax savings every year for a decade or more in exchange for maybe paying 15% on some of those shares at some point 20+ years from now.

[hoofaman]

I have about 100k in carry forward losses I've harvested over the years, in addition to offsetting 3k of income each year it can also be handy for situations like selling a home. Our current home would likely sell for an amount that would yield gains greater than the exclusion limit, so I could offset those gains with these losses for example.

And I may never have to pay tax on the lowered basis as I may not need to sell it in my lifetime

[scorcher31]

Hey all,

Still trying to wrap my head around it as I play with turbo tax from this year. A few more questions

1. Is there ever a concern by switching from VTSAX to a vanguard sp500 fund that the difference in the funds performance may outweigh the benefit? Would I just move it back in a couple of months?

2. Other than not buying or getting a dividend in the share I am selling from for 30 days to avoid a wash sale, does it matter if the specific stock I'm selling was held short term vs long term?

3. Lastly, and again I'm new to this, but I have a ton of dividends both qualified and non qualified thrown off a year, but really no capital gains as I don't sell stocks. Tax loss harvesting would not offset dividend income right? I basically would just be offsetting 3k of ordinary income per year with a carry forward.

[toddthebod]

Hey all,

Still trying to wrap my head around it as I play with turbo tax from this year. A few more questions

1. Is there ever a concern by switching from VTSAX to a vanguard sp500 fund that the difference in the funds performance may outweigh the benefit? Would I just move it back in a couple of months?

2. Other than not buying or getting a dividend in the share I am selling from for 30 days to avoid a wash sale, does it matter if the specific stock I'm selling was held short term vs long term?

3. Lastly, and again I'm new to this, but I have a ton of dividends both qualified and non qualified thrown off a year, but really no capital gains as I don't sell stocks. Tax loss harvesting would not offset dividend income right? I basically would just be offsetting 3k of ordinary income per year with a carry forward.

1. They are 99% correlated. I do not expect that to change.

2. It matters because short term losses apply against short term gains first, then long term gains, then income. Long term losses apply against long term gains first, then short term gains, then income. So short term are better, but in your case probably won't matter.

3. Correct, ordinary income, not dividends (unless dividends are the only income you have!)

[WalkingBackToHouston]

I have about 100k in carry forward losses I've harvested over the years, in addition to offsetting 3k of income each year it can also be handy for situations like selling a home. Our current home would likely sell for an amount that would yield gains greater than the exclusion limit, so I could offset those gains with these losses for example.

And I may never have to pay tax on the lowered basis as I may not need to sell it in my lifetime

I don't quite understand the benefit of effectively transferring unrealized gains from your home to your equities (maybe Im missing something?). As to the last point I can see why TLH could be a home run for heirs.

EDIT: on further thought regarding the gains transfer from home to equities, I suppose that putting the gains in equities affords you the ability to deal with them over more years and possibly keep yourself out of the higher gains bracket? As opposed to taking the one huge gain in a single year and having some portion of that in the higher tax bracket?

[TomatoTomahto]

. As to the last point I can see why TLH could be a home run for heirs.

I don’t think our heirs (or charities) will care if we TLH or don’t. Financially it’s all the same to them.

[WalkingBackToHouston]

. As to the last point I can see why TLH could be a home run for heirs.

I don’t think our heirs (or charities) will care if we TLH or don’t. Financially it’s all the same to them.

If you leave your heirs a ton of gains (untaxed because they were unrealized), they get a step up in basis. Thats x% of a ton more for them than they would have gotten if you had paid taxes on them before you died. x being int the neighborhood of 15%-20% ?
Am I thinking about that wrong?

[TomatoTomahto]

I don’t think our heirs (or charities) will care if we TLH or don’t. Financially it’s all the same to them.

If you leave your heirs a ton of gains (untaxed because they were unrealized), they get a step up in basis. Thats x% of a ton more for them than they would have gotten if you had paid taxes on them before you died. x being int the neighborhood of 15%-20% ?
Am I thinking about that wrong?

Maybe I’m thinking of it wrong, but I’m coming from a place where I don’t TLH other than for the $3k annually. Who knows what the future holds, but our plan is to live off SS, pensions, and dividends, so no CG taxes. But yes, if we were to be paying CG taxes, that would reduce our heirs’ take, but presumably if we were doing that it would have been for consumption, so they’d be out that money anyway.

FWIW, the stepped up basis might be legislated away some day, but not my problem, I’ll be dead

[WalkingBackToHouston]

If you leave your heirs a ton of gains (untaxed because they were unrealized), they get a step up in basis. Thats x% of a ton more for them than they would have gotten if you had paid taxes on them before you died. x being int the neighborhood of 15%-20% ?
Am I thinking about that wrong?

Maybe I’m thinking of it wrong, but I’m coming from a place where I don’t TLH other than for the $3k annually. Who knows what the future holds, but our plan is to live off SS, pensions, and dividends, so no CG taxes. But yes, if we were to be paying CG taxes, that would reduce our heirs’ take, but presumably if we were doing that it would have been for consumption, so they’d be out that money anyway.

FWIW, the stepped up basis might be legislated away some day, but not my problem, I’ll be dead

I dont chase the step up either. I see some benefit to TLH but nothing that gets me really excited.

[dcabler]

Folks upstream have explained it well.

I think of it as mainly being a way to make a little lemonade out of some lemons - an incremental improvement for a small amount of work on my part. One of many tools in the toolbag. I unwittingly did my first one in 2008 and had the $3K carryover for quite a long time after that. I did another one, this time deliberately, just a few years ago and will likely have the $3K carryover for a few more years yet. At this point, the long term gain on all of my holdings is pretty large so it would take a heck of a correction for me to be able to do that again, but never say never.

As often comes up in threads about TLH, you really need to make sure that the tax loss harvesting partner fund is one you're willing to live with forever. There's no guarantee that there will ever come a time where you can TLH all or even some of it back to your original fund.

Cheers.

[steadyosmosis]

For me, TLH has been worth $3,000 per year of avoided taxes, and that for many years.

Nowadays (and for the foreseeable future) I pay zero percent tax on LTCG, so my TLH is still paying off in that manner.

(I am retired, and younger than age 59.5, and I pay all of my expenses from my taxable brokerage account, which contains 100% VTI equities.)

[kingsnake]

I think it is worth it.

Yesterday I sold VUG at a $10,000 loss and bought VOO.

I have $120,000 in losses built up.

I will be in a lower bracket when I retire and will have some real estate gains to cover in the future as well.

[Artsdoctor]

There two very large benefits of tax-loss harvesting although they may not apply to everyone.

1. If you have philanthropic interests, and (even better) utilize a donor advised fund, the shares with lower cost basis can later be donated to your DAF so you really never pay the "increased" capital gains but all the while have your perpetual carryover losses you can continue using.

2. Remember that the home capital gain exemptions have not been indexed to inflation. So the $250,000/$500,000 exemption still applies but more people may find that they're sitting substantial capital gains when selling their house. If you have significant carryover losses, they can soften the blow of a large capital gain when selling your home.

All of that said, I think it's safe to say that tax-loss harvesting may be beneficial for some, but not for others. It's not a black and white issue.

[toddthebod]

Tax loss harvesting will be the most profitable use of time you will ever have in your life. The amount of money you can save for 5-10 minutes of effort is astronomical when compared to any other way to make money.

In this thread, on one side, you have read from a dozen posters who have made the minimal effort, reaped the profits, and are singing it's praises.

On the other side, you have people who have not done it coming up with nebulous reasons why they think it isn't worth it.

What you don't see is anyone who has actually ended up worse off financially as a result, because those people don't actually exist.

I am a tax loss harvesting evangelist, because I spent less than 5 minutes clicking some buttons on my computer in 2022, and I will pay $1,000 less in taxes year after year for the foreseeable future as a result. It's a no brainer.

[smitcat]

If you leave your heirs a ton of gains (untaxed because they were unrealized), they get a step up in basis. Thats x% of a ton more for them than they would have gotten if you had paid taxes on them before you died. x being int the neighborhood of 15%-20% ?
Am I thinking about that wrong?

Maybe I’m thinking of it wrong, but I’m coming from a place where I don’t TLH other than for the $3k annually. Who knows what the future holds, but our plan is to live off SS, pensions, and dividends, so no CG taxes. But yes, if we were to be paying CG taxes, that would reduce our heirs’ take, but presumably if we were doing that it would have been for consumption, so they’d be out that money anyway.

FWIW, the stepped up basis might be legislated away some day, but not my problem, I’ll be dead

A few thoughts....
- typically most of the dividends are capital gains
- usually there are many opportunities to TLH more than $3K per year
- your 'base' incomes now and in the future (earned income, SS, pensions, etc) will certainly insure you are paying LTCG taxes
- all of these will most certainly affect your heir(s)

[hoofaman]

I have about 100k in carry forward losses I've harvested over the years, in addition to offsetting 3k of income each year it can also be handy for situations like selling a home. Our current home would likely sell for an amount that would yield gains greater than the exclusion limit, so I could offset those gains with these losses for example.

And I may never have to pay tax on the lowered basis as I may not need to sell it in my lifetime

I don't quite understand the benefit of effectively transferring unrealized gains from your home to your equities (maybe Im missing something?). As to the last point I can see why TLH could be a home run for heirs.

EDIT: on further thought regarding the gains transfer from home to equities, I suppose that putting the gains in equities affords you the ability to deal with them over more years and possibly keep yourself out of the higher gains bracket? As opposed to taking the one huge gain in a single year and having some portion of that in the higher tax bracket?

In my case it's very likely that I'll sell my home at some point in the future, we are not planning on living in this house forever. However it's not clear if I will need to realize gains in my taxable account in the future as that money may not be needed, the option is there of course though

[bling]

yes, TLH is worth it. the first time you do it, it's a bit frightening, especially if it's a large amount of money. but once you've done it two or three times, it's no different than things like transferring money between two accounts (you double check you typed in the correct amount right??)

certain brokers make it very easy because you can queue up multiple trades and execute them all at the same time. as BHs, our ETFs are super liquid so market orders are just fine.

but once this is done, i now have these losses to use (or not) whenever i want in the future. there's no downside.

if you hit the bucket, your heirs reset the cost basis to the market value, which is a huuuuuugge benefit.

even if you retire at a high tax bracket you won't be paying more than 15% anyway. and if you're paying 20% on LTCG you're super loaded and all of this is a waste of your time.

[alfaspider]

It would be extremely unlikely for TLH to result in additional tax paid in the aggregate when factoring the time value of money and the fact that you can use some of the loss against your ordinary income.

The offset against ordinary income is an advantage and keeping the money invested rather than giving it to the IRS is an advantage. The disadvantage is that you are effectively lowering the costs basis of the tax lots so that when do you eventually sell for a taxable gain more of the value of the shares is taxable. Whenever you decide to sell, you're going to pay capital gains tax on the difference between sale price and the cost basis. Delaying paying taxes is not a bad thing, but that's essentially what tax loss harvesting is.

Of course, but $3k ordinary deduction for capital losses makes it better than a pure delay. Plus, money has time value. A 20-year delay in tax is equivalent to a reduction of more than half (depending on what your discount rate is). TLH is especially useful for accumulators who are using a taxable account for tax-advantaged overflow. They may not realize the gains for more than 20 years, and by managing tax lots plus avoiding spending your taxable account to zero, you may be able to defer forever and let your heirs get the basis step up.

[steadyosmosis]

Tax loss harvesting will be the most profitable use of time you will ever have in your life. The amount of money you can save for 5-10 minutes of effort is astronomical when compared to any other way to make money.

In this thread, on one side, you have read from a dozen posters who have made the minimal effort, reaped the profits, and are singing it's praises.

On the other side, you have people who have not done it coming up with nebulous reasons why they think it isn't worth it.

What you don't see is anyone who has actually ended up worse off financially as a result, because those people don't actually exist.

I am a tax loss harvesting evangelist, because I spent less than 5 minutes clicking some buttons on my computer in 2022, and I will pay $1,000 less in taxes year after year for the foreseeable future as a result. It's a no brainer.

+1.
Very easy no-risk money, sort of akin to matching 401k dollars.

[Nathan Drake]

My issue with TLH is that I rarely get to take advantage of it

I prioritize tax sheltered accounts and that doesn’t leave a massive amount of money each year for Taxable.

So I’d basically need a > 10% correction across the board on all the assets I’m allocating to, and that situation tends to be rare.

Last time was COVID.

[Artsdoctor]

My issue with TLH is that I rarely get to take advantage of it

I prioritize tax sheltered accounts and that doesn’t leave a massive amount of money each year for Taxable.

So I’d basically need a > 10% correction across the board on all the assets I’m allocating to, and that situation tends to be rare.

Last time was COVID.

This is very common. If you take a look at national statistics, the majority of investors have their investment portfolio in their retirement accounts.

All of that said, there are some distinct advantages of having at least a small amount of investments in a taxable account if possible. It can make charitable giving extremely tax-efficient, and you can use carryover losses even if the amount is relatively small.

[VanGar+Goyle]

I have 2 questions regarding tax loss harvesting?

1. Is there even a benefit to it if my expect my retirement/future tax rate to be the same or higher and I am lower the basis?

There are several ways that Tax Loss Harvesting can help, as others have mentioned.
TLH May reduce your ordinary income by $3000 a year.
TLH May reduce the cost of rebalancing.
TLH May reduce cost basis, saving taxes at death.
TLH May reduce cost basis, saving taxes at donation, compared to other ways to donate to charity.
If you only harvest short term losses, and only harvest long term gains, you may gain overall.

A Vanguard article estimated that TLH may "aim to capture up to 1%–2% or more annually in after-tax alpha for certain clients whose portfolios regularly realize large capital gains", but that seems optimistic for most people in most years.

[Florida Orange]

Of course, but $3k ordinary deduction for capital losses makes it better than a pure delay. Plus, money has time value. A 20-year delay in tax is equivalent to a reduction of more than half (depending on what your discount rate is). TLH is especially useful for accumulators who are using a taxable account for tax-advantaged overflow. They may not realize the gains for more than 20 years, and by managing tax lots plus avoiding spending your taxable account to zero, you may be able to defer forever and let your heirs get the basis step up.

Those are valid points. But if your money is invested in the stock market "the time value of money" is based on the fact that stocks generally go up over time. By tax loss harvesting and resetting your cost basis to a lower level that same mechanism is working against you. It means that eventually (assuming you sell at some point) your taxable capital gain is greater than it would have been if you had not tax loss harvested. Figuring out the math on whether it's worth it would require precise knowledge of what is going to happen to the value of your stocks between the time you TLH and the time you sell those shares. In other words, you would have to accurately predict the future of the stock market.

[stan1]

When I did it I generally waited for $5-10K minimum blocks in 2008 and in March 2020 I waited a bit longer and it was more. I definitely did not manually do it for smaller amounts on a routine basis or try to replicate a robovisor's automated behavior.

[toddthebod]

Those are valid points. But if your money is invested in the stock market "the time value of money" is based on the fact that stocks generally go up over time. By tax loss harvesting and resetting your cost basis to a lower level that same mechanism is working against you. It means that eventually (assuming you sell at some point) your taxable capital gain is greater than it would have been if you had not tax loss harvested.

The "time value of money" does not work against. you. It works for you, because you generate an investable tax savings at some point along the way as a result of tax loss harvesting.

Scenario 1: You buy 10 shares at $100/share. They drop to $90/share. You do nothing. You hold them until they are worth $200/share. You sell. You realize ($200 - $100) x (10) = $1,000 in gains.

Scenario 2: You buy 10 shares at $100/share. They drop to $90/share. You sell and buy a similar fund that is also priced at $90/share. You realize ($90 - $100) x (10) = $100 in losses. You hold them until they are worth $200/share. You sell. You realize ($200 - $90) x (10) = $1,100 in gains.

Your net capital gain is exactly the same in both cases, the difference being in the time and rate of taxation which almost always strongly favors Scenario 2.

[Nathan Drake]

My issue with TLH is that I rarely get to take advantage of it

I prioritize tax sheltered accounts and that doesn’t leave a massive amount of money each year for Taxable.

So I’d basically need a > 10% correction across the board on all the assets I’m allocating to, and that situation tends to be rare.

Last time was COVID.

This is very common. If you take a look at national statistics, the majority of investors have their investment portfolio in their retirement accounts.

All of that said, there are some distinct advantages of having at least a small amount of investments in a taxable account if possible. It can make charitable giving extremely tax-efficient, and you can use carryover losses even if the amount is relatively small.

I have a good amount in taxable, but most of it is long term gains. I also continue making taxable contributions but they’re smaller than my 401k

TLH depends heavily on new contributions, the longer you are invested.

Just highlighting that TLH generally tends to require a fairly significant correction for me to take advantage of.