Harvesting capital gains and losses

Abstract

Monte Carlo simulations are used to demonstrate that a very attractive tax-based trading strategy is to realize all capital losses, using excess losses to offset realized gains to rebalance the portfolio. This strategy increases the mean and median return by taking advantage of the tax-deductibility of losses, and mitigates risk by allowing low-cost portfolio rebalancing. This portfolio rebalancing also restarts the basis and time clock, thereby planting the seeds for a future harvesting of capital losses that can be deducted from income and used to rebalance the portfolio perpetually. © 2008 Academy of Financial Services. All rights reserved. JEL classifications: G11; H24

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Cite this paper

@inproceedings{Smith2008HarvestingCG, title={Harvesting capital gains and losses}, author={Margaret Hwang Smith and Gary Smith}, year={2008} }