09 Oct Tax-Loss Harvesting: What to Consider Before Year-End

Tax-Loss Harvesting Before Year-End: What Investors Should Consider for 2026 and 2027

As the end of 2026 approaches, investors may be focused on holiday plans, year-end expenses, and preparing for the new year. But this can also be an important time to review your investment portfolio for potential tax-planning opportunities.

One strategy that may be worth evaluating is tax-loss harvesting.

Tax-loss harvesting involves selling an investment in a taxable account that has declined below its cost basis. The realized loss may then be used to offset certain investment gains and, depending on your circumstances, potentially reduce a portion of ordinary taxable income.

But there’s an important distinction: an investment shouldn’t necessarily be sold simply because it has lost value. Tax considerations are one part of the decision. Your portfolio, investment strategy, future goals, and overall financial plan should still drive the conversation.

How Does Tax-Loss Harvesting Work?

Consider a simplified example.

Suppose you purchased an investment for $10,000 and it is now worth $9,000. If you continue holding it, that $1,000 decline is an unrealized loss. If you sell the investment, you generally realize the $1,000 capital loss for tax purposes.

That loss may potentially be used to offset capital gains elsewhere in your taxable portfolio.

If your eligible capital losses exceed your capital gains for the year, up to $3,000 of the remaining net capital loss may generally be deductible against ordinary income ($1,500 for married taxpayers filing separately). Additional unused losses may generally be carried forward to future tax years.

This is one reason year-end portfolio reviews can be valuable. A loss realized in 2026 may not only affect your 2026 tax situation—it could potentially provide a capital-loss carryforward that can be used in 2027 or later.

Tax-Loss Harvesting Doesn’t Apply to Every Account

Tax-loss harvesting generally applies to investments held in taxable accounts, such as an individual or joint brokerage account.

Selling an investment at a loss inside an IRA or 401(k) does not create the same capital-loss deduction. That’s because gains and losses inside those retirement accounts receive different tax treatment.

Before making a trade, it’s important to understand not only whether an investment has declined but also where the investment is held.

Be Careful of the Wash-Sale Rule

One of the most important tax-loss harvesting rules involves what happens after an investment is sold.

Under the wash-sale rule, a loss may be disallowed for current tax purposes if you purchase the same or a substantially identical investment within 30 days before or after the sale.

That makes the rule more complicated than simply selling an investment and waiting 30 days to buy it again. Purchases made shortly before the sale can matter, too, and transactions involving a spouse, certain retirement accounts, or automatic dividend reinvestment may also need to be considered.

Some investors may choose to temporarily invest the proceeds in a different investment to maintain market exposure while avoiding a substantially identical security. Others may wait until the applicable wash-sale period has passed before repurchasing.

Either way, the replacement investment should make sense within the broader portfolio—not simply satisfy a tax objective.

Why Look at Tax-Loss Harvesting Before December 31?

Waiting until the final days of the year can limit your flexibility.

Reviewing your portfolio earlier gives you more time to identify unrealized losses, compare them with realized gains, consider expected year-end distributions, and evaluate potential replacement investments.

It also gives your financial and tax professionals more time to coordinate before year-end rather than making decisions under a December 31 deadline.

Tax-loss harvesting can be a useful planning tool, but the tax benefit should support the investment strategy—not replace it.

How Could a 2026 Loss Help in 2027?

Tax-loss harvesting doesn’t necessarily provide a benefit only in the year the loss is realized.

If your eligible capital losses exceed the amount you can use in 2026, the remaining losses may generally be carried forward to future tax years. That could become useful if you expect to realize capital gains in 2027 or beyond.

For example, future gains could result from rebalancing your portfolio, reducing a concentrated stock position, selling appreciated investments, or making other changes to your taxable accounts.

This is why tax-loss harvesting should be viewed as part of a multi-year tax and investment strategy rather than simply a December tax-saving tactic.

When Might Tax-Loss Harvesting Be Worth Considering?

Tax-loss harvesting may be worth evaluating when you have investments with unrealized losses in taxable accounts and also have realized or anticipated capital gains.

It may also be relevant when:

• Your portfolio needs to be rebalanced
• An investment no longer fits your strategy
• You expect a different income or tax situation next year
• You are planning to sell appreciated investments in the future
• You already have capital-loss carryforwards that need to be considered

The existence of a loss alone doesn’t mean an investment should be sold. The investment decision still needs to make sense.

Avoid Letting Taxes Drive the Entire Investment Decision

Tax-loss harvesting can become counterproductive when investors focus on the tax deduction while ignoring the portfolio.

Before selling, consider whether you still believe in the investment, whether a replacement fits your strategy, how the trade affects your asset allocation, and whether transaction or other costs reduce the potential benefit.

It’s also important to coordinate activity across accounts. A purchase by a spouse, an automatic dividend reinvestment, or certain transactions involving a retirement account could potentially create wash-sale complications.

A tax strategy should support your investment plan—not dictate it.

Make Tax Planning Part of Your Year-End Portfolio Review

At Nova Wealth Management, we believe investment management and tax planning shouldn’t happen in separate conversations.

A year-end review can be an opportunity to look at realized gains and losses, portfolio positioning, potential capital-loss carryforwards, upcoming financial needs, and your expected tax situation for the following year.

We can help evaluate investment decisions within your broader financial plan and coordinate with your tax professional when appropriate.

Want to review your portfolio before year-end? Schedule a meeting with Nova Wealth Management.

Frequently Asked Questions

What is tax-loss harvesting?

Tax-loss harvesting generally involves selling an investment in a taxable account at a loss so the realized loss can potentially offset eligible capital gains and, within applicable limits, ordinary income.

Can I tax-loss harvest inside an IRA or 401(k)?

No. Selling an investment at a loss inside an IRA or 401(k) does not generate the same capital-loss deduction available for eligible investments held in taxable accounts.

Can unused investment losses carry forward to future years?

Generally, yes. Eligible capital losses that cannot be fully used in the current tax year may generally be carried forward and potentially used in future tax years, subject to applicable tax rules.

Source: Forbes, Nathan Goldman, Oct. 8, 2026. Licensed through AdvisorStream.

This material is provided for general educational and informational purposes only and is not intended as individualized investment, tax, or legal advice. Tax-loss harvesting involves investment and tax considerations and may not be appropriate for every investor. Consult with your financial and tax professionals regarding your individual circumstances.