Is this a good year for tax-loss harvesting?

Long version

Thanks to market swings, evolving tax laws and new technology, it may be a good year to consider tax-loss harvesting – a strategy that can help reduce taxes and improve long-term returns.

What is tax-loss harvesting? When you sell an investment for less than you paid, you may be able to use that loss to offset gains from other investments, potentially reducing your overall tax bill.

If your total capital losses exceed your gains, you can use up to $3,000 of those losses to reduce ordinary income each year. You can carry any remaining losses forward to future tax years. The strategy doesn't eliminate taxes altogether; it simply defers them, which can free up money to reinvest elsewhere.

How it works. Imagine an investor who sold one stock for a $10,000 gain and another for a $10,000 loss. The two transactions cancel each other out, meaning no capital gains tax is owed for that year. The investor can then reinvest the proceeds while following the IRS's "wash-sale rule." This rule prevents you from claiming a loss if you, or your spouse or a related party, repurchase the same or a "substantially identical" investment within 30 days before or after the sale.

Because of this rule, you should consider how tax-loss harvesting will affect your investment strategy, as the benefit of holding on to that investment (and letting it grow over time) may outweigh the benefit of lowering your capital gains tax bill for a given year.

Good candidates for tax-loss harvesting include investments that no longer fit your strategy (when rebalancing your portfolio, for example), have poor investment potential or can be easily substituted with other investments.

Why 2025 may be favorable. Several factors suggest 2025 may be a good time to consider tax-loss harvesting.

First, market volatility has created more opportunities to realize losses. The first half of the year saw sharp market swings that left some portfolios uneven. Many large asset managers have already harvested billions in losses, using them to help lower clients' tax liability while keeping investment strategies on track.

Second, tax law changes are on the horizon. With major tax reform provisions scheduled to expire in the coming years, many investors are motivated to manage their gains and losses proactively. Those in higher tax brackets stand to benefit most, as the savings increase with your tax rate.

Finally, technology has made the process more efficient. In the past, investors typically harvested losses near year-end. Today, automation and direct indexing allow for continuous monitoring and harvesting throughout the year, capturing losses as they appear.

Putting it into practice. Tax-loss harvesting isn't right for everyone, and it's not a reason to overhaul your investment strategy. The approach works best for investors with taxable accounts, current or expected capital gains and a long-term perspective.

Consult your financial advisor and a tax professional before making decisions. When used thoughtfully, tax-loss harvesting can help you navigate a volatile market, reduce taxes and keep more of your money working toward your future goals.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Edward Jones, Member SIPC
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.

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Short version (radio/print/online)

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ANNOUNCER:
Looking to make your portfolio more tax-efficient? Tax-loss harvesting might be worth a look.

It’s a strategy where you sell investments that have dropped in value to offset gains elsewhere – potentially lowering your tax bill and boosting long-term returns.

2025 could be a good year to consider it. Market volatility has created more chances to realize losses, and upcoming tax law changes may make timing especially important.

But this strategy isn’t for everyone. It works best if you have taxable accounts, capital gains and a long-term outlook.

And you’ll need to follow IRS rules, like the wash-sale rule, which limits when you can buy back the same, or substantially identical, investment.

Sometimes, holding onto an investment and letting it grow over time may outweigh the benefit of lowering your capital gains tax this year.

Before making moves, talk to your financial advisor and tax professional to decide if tax-loss harvesting is right for you.

This content was provided by Edward Jones for use by (FA’s NAME), your Edward Jones financial advisor at (Branch address or phone#).

Edward Jones|Member SIPC
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.

Number of words: 151 (before name, address and disclosure)