As the year comes to a close, investors often take a fresh look at their portfolios to ensure their strategy remains aligned with long-term goals. One of the most effective ways to improve after-tax returns is through tax-loss harvesting, a strategy that involves selling investments that have declined in value to offset realized capital gains and potentially reduce your tax liability. 

With market performance mixed across sectors in 2025, December offers a timely opportunity to assess your portfolio and make any necessary adjustments before the new year begins. 

• Understand How Tax-Loss Harvesting Works: Tax-loss harvesting allows you to sell securities that have declined in value to realize losses that can offset taxable gains elsewhere in your portfolio. If your capital losses exceed your gains, you may deduct up to $3,000 in net capital losses from ordinary income ($1,500 if married filing separately), with any additional losses carried forward to future tax years.1 For example, if you realized $10,000 in long-term capital gains this year but have $7,000 in realized losses, only $3,000 would be subject to capital gains tax. This can provide meaningful tax savings while maintaining your investment discipline. 

• Spend Smart and Save Strategically: The IRS “wash-sale” rule prohibits investors from claiming a loss on a security if a substantially identical investment is purchased within 30 days before or after the sale.2 To stay compliant, consider reinvesting proceeds in a similar — but not identical — asset or ETF to maintain exposure to the same sector while preserving the tax benefit. A financial advisor can help identify suitable alternatives that align with your risk tolerance and diversification needs. 

• Keep the Bigger Picture in Mind: Tax-loss harvesting shouldn’t override your long-term investment strategy. Overemphasis on short-term tax savings can create portfolio imbalances or missed opportunities for growth. It’s most effective when integrated into a holistic financial plan that includes diversification, risk management, and rebalancing. By trimming losing positions, you can redeploy capital into stronger-performing sectors or assets that better match your long-term goals. Partnering with a Wedbush financial advisor can ensure your harvesting aligns with your broader goals and doesn’t disrupt your asset allocation. 

As the year winds down, reviewing your portfolio with tax efficiency in mind can help turn short-term setbacks into long-term gains. Thoughtful planning around harvesting, reinvestment, and rebalancing can reduce tax drag while keeping your portfolio aligned with your financial objectives. Your Wedbush financial advisor can help ensure each move supports your broader wealth strategy, closing the year on a smarter, stronger note. 

Sources: 

[1] https://www.irs.gov/taxtopics/tc409 

[2] https://www.irs.gov/publications/p550 

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