Introduction to Tax-Loss Harvesting
Investors constantly ask, “Is this a good year for tax-loss harvesting?” The answer is not a simple yes or no; it depends on a convergence of three dynamic forces that have come together in 2024: market volatility, tax-law evolution, and technology acceleration.
Market Volatility in 2024
The S&P 500 index has experienced wide swings, creating fresh paper losses that can be realized for tax benefit. The standard deviation of daily returns across major U.S. equity indices has risen to 1.4%, the highest level since 2011.
Sector-Specific Swings
| Sector | YTD Performance | Typical Loss-Harvest Candidates |
|---|---|---|
| Technology | –18% (from 2023 peak) | Large-cap growth stocks (META, SNAP) and high-beta ETFs (XLK, QQQ) |
| Energy | +22% (post-OPEC-plus) | Mid-cap oil-service firms that lagged the rally (e.g., Halliburton) |
| Financials | Mixed (regional banks –12%, mega-banks +4%) | Regional-bank REITs and niche fintech stocks |
Recent Tax Law Changes
The Inflation Reduction Act extensions, the 2024 IRS wash-sale guidance, and state-level changes have raised the ceiling on deductible losses.
1. Inflation Reduction Act (IRA) Extensions
- $3,000 annual capital-loss deduction for individuals (up from $1,500 before 2023) remains in effect through 2025.
- Carry-forward rule clarified: unused capital losses now carry forward indefinitely, eliminating the previous five-year expiration.
2. 2024 IRS Notice 2024-45 – Wash-Sale Timing
- The IRS refined the definition of substantially identical for ETFs and mutual funds, adding a 30-day look-back and forward window on both sides of the transaction.
- Practical impact: investors must wait 31 days after selling a loss-generating security before buying a replacement that could be deemed substantially identical.
Technology Enablers: Automated Platforms and AI
AI-driven platforms now automate loss identification, compliance checks, and execution, reducing friction and transaction cost.