As 2026 draws to a close, now is an excellent time to review your investment portfolio and consider strategies that may help manage your tax liability while positioning your finances for the year ahead.
While market fluctuations are a natural part of investing, even investments that have declined in value may present opportunities. One strategy worth considering is tax-loss harvesting, a planning technique that can help investors manage capital gains taxes and potentially create tax benefits that extend into 2027 and beyond.
What Is Tax-Loss Harvesting?
Tax-loss harvesting involves selling investments that have declined in value below their original purchase price to realize a capital loss for tax purposes.
For example, imagine purchasing an investment for $15,000 that is now worth $12,000. Selling that investment would generally generate a $3,000 capital loss, assuming no other adjustments to its cost basis. That loss could potentially offset $3,000 in realized capital gains from other investments.
If your total capital losses exceed your capital gains, you may also be able to deduct up to $3,000 of the remaining net loss against ordinary income annually ($1,500 for married taxpayers filing separately).
Any unused capital losses can generally be carried forward to future tax years.
This means an investment that hasn't performed as expected may still offer an opportunity to improve your overall tax position.
Why Tax-Loss Harvesting Matters as We Approach 2027
Year-end tax planning isn't just about reducing your current tax bill. It's also about making thoughtful financial decisions that may benefit you in the years ahead.
Creating opportunities for future tax savings
Capital losses realized in 2026 that cannot be fully utilized may be carried forward to 2027 and subsequent years. These losses can potentially offset future capital gains from portfolio rebalancing, investment sales, or other taxable transactions.
Planning around changing financial circumstances
Your income, investment gains, and tax situation may change from one year to the next. Reviewing these factors before December 31 may provide opportunities to coordinate investment decisions with your broader tax strategy.
Getting ahead of year-end deadlines
Starting the planning process in October or November gives investors additional time to evaluate opportunities, review potential transactions, and navigate important tax rules without feeling rushed during the final weeks of December.
Understanding the Wash-Sale Rule
One important consideration when implementing tax-loss harvesting is the IRS wash-sale rule.
Generally, this rule prevents investors from claiming a tax loss if they purchase the same or a substantially identical security within 30 days before or after selling an investment at a loss.
The rule can also apply to certain transactions involving a spouse's account, retirement accounts, or automatic dividend reinvestments.
Investors seeking to maintain market exposure may consider purchasing an alternative investment that is not substantially identical. However, any replacement should be evaluated in the context of the investor's overall portfolio and financial objectives.
Proper coordination is essential to avoid unintentionally losing an intended tax benefit.
A Few Steps to Consider Before Year-End
With December 31 approaching, investors may benefit from taking a proactive approach to evaluating their portfolios.
Review your taxable investment accounts. Identify unrealized gains and losses and assess whether any holdings warrant a closer look.
Evaluate your realized capital gains. Understanding the gains already generated during 2026 can help determine where tax-loss harvesting may be appropriate.
Consider your 2027 financial outlook. Anticipated income changes, investment sales, and other financial events may influence your tax-planning decisions.
Coordinate with your financial and tax professionals. A collaborative approach can help ensure that investment decisions align with your long-term financial objectives while accounting for applicable tax rules.
It's also important to remember that tax-loss harvesting generally applies to taxable investment accounts, not investments held within tax-deferred retirement accounts such as traditional IRAs and 401(k)s.
Keeping the Bigger Picture in Focus
While potential tax savings can be beneficial, taxes should never be the sole factor driving investment decisions.
Selling an investment simply to recognize a loss may not make sense if doing so conflicts with your long-term strategy. Transaction costs, market movements, portfolio allocation, and future tax implications should all be considered.
The objective isn't simply to generate tax losses. It's to identify opportunities to manage taxes while maintaining an investment strategy designed around your financial goals.
Looking Ahead With Confidence
As we prepare to enter 2027, year-end presents a valuable opportunity to evaluate where you stand financially and whether adjustments may help support your longer-term plans.
At Artiea Capital Management, we believe effective financial planning is an ongoing process. From reviewing investment allocations to identifying potential tax-planning opportunities, thoughtful preparation can help you make more informed decisions as your financial circumstances evolve.
If you haven't reviewed your portfolio or year-end planning strategies recently, now may be a good time to start the conversation.
Connect with our team at Artiea Capital Management to discuss your financial goals and explore strategies that may be appropriate for your situation as we look ahead to 2027.
Source inspiration: Nathan Goldman, "How Tax Loss Harvesting Can Help You Prepare For 2027," Forbes, October 8, 2026. Article licensed through AdvisorStream.
Disclaimer: This content is provided for general informational and educational purposes only and should not be considered individualized investment, legal, or tax advice. Tax-loss harvesting involves specific IRS rules, and its benefits depend on individual circumstances. Consult with your financial advisor and qualified tax professional before implementing any tax-related investment strategy. Investing involves risk, including possible loss of principal.