Tax Harvesting Strategies: How to Make Gains and Losses Work in Your Favor

Part of every year-end planning routine should include taking a close look at your investments. How did the market behave relative to your expectations this year? And how did that movement affect your mix of gains and unrealized losses? While 2025 delivered strong overall performance, with only brief pullbacks in April and again late last month, it’s still a good time to reassess positions that may benefit from tax-gain or tax-loss strategies before year-end.

Most investors are familiar with the latter. However, fewer take advantage of the opportunity to harvest gains. The market’s bullish year means investors should weigh both approaches to see how they could benefit their year-end tax position.

Tax-Gain Harvesting

Tax-gain harvesting is one of the most proactive (and often underused) ways to reduce long-term taxes…even though tax-loss harvesting tends to get all the attention.

Tax-gain harvesting is the intentional selling of an investment that has gone up in value and then buying it back again. This strategy works in two ways: it can reduce or eliminate tax liability on that asset if the investor’s taxable income falls into the 0% long-term capital gains tax bracket for the year, and it resets the basis higher. Meaning, once the investment is sold for good, future gains are smaller and therefore taxed at a lower amount.

It's best used in a low-tax year when there’s a gap in income, providing the room to take gains without triggering tax.

The most common circumstances are:

• The post-retirement years before benefits and distributions begin.
• Years with unusually large deductions that temporarily reduce taxable income.
• A down-income year due to timing of bonuses, equity compensation, or real estate activity.
• Years when a business owner has a dip in earnings or accelerates deductions.

In 2025, the thresholds for the 0% long-term capital gains bracket are up to $48,350 for single filers and $96,700 for married filing jointly. Short-term gains are taxed at ordinary income rates, since they come from assets held for one year or less.

Another advantage is there’s no wash-sale rule to worry about. Because the asset is being sold as a gain, not a loss, the wash-sale rule doesn’t apply here. Investors do not have to abide by the 30-day buy-back waiting period or risk timing the market. It can be sold and purchased again immediately.

Just remember, though, the first priority in lower-income years is usually to use that window for a Roth conversion. It replaces future taxable retirement withdrawals with tax-free growth. In other words, it’s ideal to choose to pay today’s lower tax rate instead of tomorrow’s potentially higher one. Once those dollars have been allocated to the Roth conversion, any remaining room should be used for tax-gain harvesting.

Tax-Loss Harvesting

Despite the market posting positive year-to-date gains, there were still sector pockets that didn’t perform as well, like materials and healthcare. For investors holding losses in those and other down sectors, tax-loss harvesting strategies can turn declines into a planning opportunity by using them to offset realized gains elsewhere in their portfolio.

If losses are greater than gains, however, investors can offset up to $3,000 of ordinary income or carry it over indefinitely. Losses don’t expire, so even a small harvest can add up over time.

Be mindful of the wash-sale rule in these transactions and avoid buying back the same or “substantially identical” security within 30 days before or after the sale. Because the IRS hasn’t clearly defined what that means, it’s best to choose an investment that doesn’t mirror the original holding, such as swapping in a fund that tracks a different index or choosing a different company within the same sector so the portfolio can maintain direction and still reap the tax benefit without jeopardizing compliance.

Steps to Take Before Yearend

Tax-harvesting strategies are highly personal and depend on each individual’s situation. Your tax management approach will hinge on your income levels this year, how your portfolio has performed, and what your future financial goals look like. For some, realizing gains in a low-income year may benefit a stronger long-term outlook. For others, realizing some losses could offer added flexibility in the years ahead.

Connect with your R&A advisor to model which opportunity is best for you.