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Investing Specialists

Tax-Gain Harvesting Can Be a Profitable Strategy

'Stepping up' cost basis can reduce tax bills for lower-income investors.


Personal finance experts often suggest that you put tax-loss selling on your year-end financial-planning to-do list. By selling positions that are trading below your purchase price, you can then use those losses to offset any capital gains that you've realized in your taxable portfolio and, if your losses exceed your gains, up to $3,000 in ordinary income.

That sounds good, but as 2016 winds down, most investors would be hard-pressed to identify many losing positions in their portfolios. Stocks have enjoyed a tremendous bull run going back to 2009; as of this writing, all but a handful of mutual fund categories are in the black over the past three and five years. Individual-stock investors may have an easier time unearthing positions that are trading below their purchase prices; company-specific events can derail individual-equity prices even as the broad market is moving up. Unless you're a very high net-worth investor or have had very bad luck picking individual stocks, however, losses on one or a handful of individual positions may not result in a big tax break.

Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.