Tax Loss Harvesting

Tax-Loss Harvesting

description: Identify tax-loss harvesting opportunities across taxable accounts. Finds positions with unrealized losses, suggests replacement securities, and tracks wash sale windows. Triggers on "tax-loss harvesting", "TLH", "harvest losses", "tax losses", "unrealized losses", or "year-end tax planning".

Workflow

Step 1: Identify Candidates

Scan taxable accounts for positions with unrealized losses:

Prioritize by:

1. Largest absolute loss (biggest tax benefit)
2. Short-term losses first (offset short-term gains taxed at ordinary income rates)
3. Positions with the largest % loss (less likely to recover quickly)

Step 2: Gain/Loss Budget

Calculate the client's tax situation:

Tax savings estimate:

• Short-term losses × marginal ordinary income rate
• Long-term losses × capital gains rate
• Up to $3,000 net loss deduction against ordinary income
• Excess carries forward

Step 3: Replacement Securities

For each harvest candidate, suggest a replacement that:

• Maintains similar market exposure (same asset class, sector, geography)
• Is NOT "substantially identical" (wash sale rule)
• Has similar risk/return characteristics

Step 4: Wash Sale Check

Before executing, verify no wash sales:

• Check ALL accounts in the household (taxable, IRA, Roth, spouse accounts)
• 30-day lookback: Did we buy substantially identical securities in the last 30 days?
• 30-day forward: Block repurchase of the same security for 30 days
• Check for dividend reinvestment plans (DRIPs) that could trigger wash sales
• Document the wash sale window for each trade

Step 5: Execution Plan

Summary:

• Total estimated losses harvested: $
• Estimated tax savings: $ (at marginal rate of %)
• Net portfolio impact: minimal (replacement securities maintain exposure)
• Wash sale window management: [dates]

Step 6: Post-Harvest Tracking

After 30+ days, optionally:

• Swap back to original securities (if preferred)
• Maintain replacement securities (if no reason to switch back)
• Update cost basis records
• Document for tax reporting

Step 7: Output

• Harvest opportunity list (Excel)
• Trade execution sheet
• Wash sale tracking calendar
• Tax savings estimate summary
• Replacement security rationale

Important Notes

• Wash sale rules are strict — violations disallow the loss AND adjust cost basis
• Substantially identical means same security, not same asset class — ETFs tracking different indexes are generally fine
• Always coordinate across all household accounts including retirement accounts
• Consider the long-term cost basis step-down — harvesting resets cost basis, which means more gains later
• Year-end is prime harvesting season but opportunities exist throughout the year
• Mutual fund capital gains distributions in December can create additional harvesting urgency
• Document everything for tax reporting and compliance
• Not all losses are worth harvesting — transaction costs and tracking error have real costs

Hermes Profile Notes

This skill was packaged from pi-financial-services source path plugins/vertical-plugins/wealth-management/skills/tax-loss-harvesting for the Hermes financial-services profile. Use institutional data connectors first when available, cite sources, and stage outputs for qualified human review.

Common Pitfalls

1. Do not present drafts as investment, legal, tax, or accounting advice.
2. Do not use web search as the primary source when an institutional MCP/data connector is available.
3. Do not execute transactions, contact clients, post to a ledger, or approve onboarding. Stage outputs for review.

Verification Checklist

• Inputs, assumptions, dates, and currencies are explicit.
• Numbers tie across tables, models, decks, and memos.
• Sources are cited and institutional data is preferred where available.
• Output is labeled draft / for human review where appropriate.