Tax Loss Harvesting Gains Momentum as 2026 Tax Code Changes Approach

• Tax-loss harvesting is a widely used technique for investors to offset capital gains by selling depreciated assets, reducing taxable income.

• This strategy is particularly relevant in 2026 as capital gains distributions rise and tax lock-in risks become more pronounced, prompting more advisors and clients to focus on tax-efficient planning.

• Advisors who integrate tax-loss harvesting with direct indexing report improved client retention and engagement, demonstrating the value of personalized portfolio customization.

How Does Tax-Loss Harvesting Work in Practice?

• Tax-loss harvesting involves selling investments at a loss to offset capital gains from profitable positions. This technique is especially useful in volatile markets and can be applied year-round to adapt to changing conditions.

• To maintain tax benefits, investors must comply with IRS rules such as the 'substantially similar investment' and wash-sale restrictions. For example, replacing a sold asset with a nearly identical one within 30 days could disqualify the tax loss.

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• Tax-loss harvesting is also complemented by broader strategies like asset location optimization, which places different asset types in appropriate account structures to minimize tax exposure.

Why Is Tax Loss Harvesting Gaining Attention in 2026?

• The rising importance of tax-loss harvesting is tied to broader tax planning considerations, including upcoming 2026 changes to deductions and estate exemptions. These developments are prompting individuals and families to reassess retirement and wealth transfer strategies.

• Additionally, many investors are becoming more aware of the tax implications of investment strategies, particularly those involving taxable interest, short-term gains, and capital-gains distributions.

• Advisors who integrate tax-aware tools like direct indexing into their practice report higher client retention and a greater share of clients' investment assets. This trend reflects the growing demand for personalized, tax-efficient portfolio management.

• As a result, tax-loss harvesting has moved beyond a standalone strategy and is now part of a broader approach to wealth preservation and long-term tax optimization.

• While the benefits are clear, investors must remain cautious about the long-term implications of selling certain assets, as this may affect portfolio diversification and risk management.