Tax-Loss Harvesting Season Is Here: What It Is, How It Works, and the Stocks Most at Risk This Year

As the calendar turns toward the final stretch of the year, a familiar pattern begins to show up across U.S. equity markets: tax-loss harvesting. It is one of the few strategies that blends portfolio management with tax optimization, and it tends to influence price action from late October through year-end. Whether you’re an individual investor cleaning up a taxable account or an institution managing capital gains distributions, tax-loss selling provides a mechanical incentive to exit losers before December 31. And this year, with sharp bifurcation across the market, the list of potential candidates is unusually long.

What Tax-Loss Harvesting Actually Is

Tax-loss harvesting is the process of selling securities in a taxable account at a loss in order to offset realized gains elsewhere in the portfolio. The difference between your purchase price (cost basis) and current sale price becomes a capital loss, which can be used to:

• Offset unlimited capital gains • Offset up to $3,000 of ordinary income • Be carried forward indefinitely if unused

The underlying idea is simple: you’re converting a loss on paper into a tax asset with tangible economic value. And because gains and losses net against each other, loss harvesting can meaningfully reduce a tax bill.

When Tax-Loss Selling Typically Happens

Although tax-loss harvesting can be done any time, it tends to follow a seasonal pattern:

• October: Mutual funds begin year-end preparation. Because many funds use Oct. 31 as their fiscal year-end, tax-loss selling can begin earlier than most retail investors expect.

• November–December: The peak. Investors have full visibility into the year’s realized gains and start locking in losses before the December 31 settlement deadline.

• Late December: Forced selling often accelerates, particularly in the least liquid names and the biggest losers.

• January: Selling pressure lifts and many of the hardest-hit stocks rebound — the so-called January Effect, often driven by the removal of tax-motivated selling plus early-year portfolio rebalancing.

This rhythm creates opportunities: stocks depressed by mechanical selling often find their lows in December and recover once the calendar flips.

The IRS Wash-Sale Rule — The Critical Guardrail

Tax-loss harvesting comes with one major rule: the wash sale rule. The IRS disallows a loss if an investor buys the same or a “substantially identical” security within 30 days before or after selling it.

That means:

• You cannot sell Vanguard Growth ETF (VUG) at a loss and immediately buy the mutual fund version. • You can swap between similar but not identical exposures (e.g., sell one tech stock and buy another, or rotate between correlated index funds with different methodologies). • You can avoid problems by using specific-share identification, selling high-cost lots while holding lower-cost lots.

The point: you can stay invested, but you must stay compliant.

Why This Year’s Tax-Loss Season Could Be Especially Active

Market performance in 2025 has been extremely uneven. Several large-cap sectors — notably health care, software, consumer discretionary, and materials — have generated deep pockets of underperformance. That creates fertile ground for tax-loss selling.

Below are the most notable Dow underperformers that investors may target:

• UnitedHealth (UNH): –37.85% YTD — the single worst Dow performer, hit by Medicare Advantage pressures, utilization spikes, and regulatory scrutiny. • Salesforce (CRM): –30.77% — multiple guidance resets and enterprise software slowdown issues. • Nike (NKE): –15.73% — weak wholesale trends, brand-rebuild challenges. • Home Depot (HD): –12.25% — sluggish home improvement cycle. • Procter & Gamble (PG): –10.25% — softer household demand and slower volumes. • Honeywell (HON): –8.28%, Disney (DIS): –3.25%, Sherwin-Williams (SHW): –2.9%, Merck (MRK): essentially flat.

UNH and CRM, in particular, stand out as prime tax-loss harvesting candidates because of magnitude, liquidity, and heavy institutional ownership.

The Much Larger Pool: S&P 500’s Biggest YTD Losers

In the broader S&P 500, the underperformance is even more pronounced. Many names are down 30–50%+ YTD, and historically, these deep-red corners see the most aggressive December selling. Categories worth watching:

Health Care (major pain point): UNH, CNC, ALGN, BAX, MRMA — facing utilization, reimbursement, and regulatory headwinds.

Technology: CRM, ADBE, ZBRA, IT, HPQ — slowed enterprise spending + AI-related competitive displacement.

Consumer Discretionary: NCLH, DECK, POOL, GOOS, BJRI — discretionary spending drag, excess inventory, muted travel demand for some categories.

Consumer Staples: HRL, BF.B, CLX, STZ, LW — volume erosion and margin pressure.

Financials: PYPL, COF, FIS, FISV — credit deterioration, fintech competition, margin compression.

Industrials & Materials: DOW, LYB, ODFL, BLDR, CHTR — cyclical freight softness, housing weakness, lower volume growth.

These names screen as the highest-probability tax-loss selling candidates given their scale of underperformance and the absence of near-term catalysts strong enough to offset mechanical selling flows.

Why Tax-Loss Selling Actually Moves These Stocks

Tax-loss harvesting isn’t emotional — it’s formulaic. Investors mechanically sell names that:

Are down significantly relative to their basis

Have weak sentiment

Have no near-term catalyst

Are easy to replace with similar exposure

Funds also avoid holding underwater positions on December 31 because they appear in annual reports. The result is often accelerated drawdowns into late December, especially in the names listed above.

Opportunities After the Selling Ends

Once forced selling exhausts itself:

• These stocks often experience a January rebound, • especially those with decent balance sheets, stable cash flow, or credible 2025 guidance resets. • Historically, the most beaten-down stocks outperform the market in January by a meaningful margin.

High-quality names on the S&P loser list — CRM, ADBE, POOL, CHTR, PYPL — are often the first to bounce.

Bottom Line

Tax-loss harvesting season is a mechanically driven part of market behavior that tends to intensify from late October through December. This year, the pool of potential candidates is unusually large: from mega-cap laggards like UNH and CRM to deep underperformers across health care, consumer stocks, and software. For investors, understanding the tax rules, the timing, and the likely pressure points can help identify both risks into year-end and opportunities once the calendar turns.