Three ways to extend tax benefits of a loss harvesting strategy

1. Have cash on the side sidelines? Consider allocating some to your accounts

Contributing cash to your accounts creates a new (many times higher) cost basis, so any ensuing volatility may create additional opportunities for harvesting those fresh tax lots.²

Our research shows that contributing about 20% of an account’s value in cash annually can maintain a near-linear increase in potential tax savings (see Chart 1), while annual contributions of 10–15% are sufficient to keep average annualized tax savings steady at or above 1% over a 10-year period (see Chart 2).

The frequency of contributions—whether quarterly, semiannually or annually—does not significantly affect tax savings. Less frequent contributions may offer practical advantages by reducing trading constraints, and increasing flexibility for capturing losses.

Monthly contributions should be avoided, however, as they could trigger wash sale restrictions and reduce harvesting opportunities.

2. Is philanthropy important to you? Consider donating appreciated securities held long-term

If you itemize deductions on your tax returns instead of taking the standard deduction, donating unrestricted publicly traded stock held long-term unlocks an additional way to save on taxes.³

The tax rules generally allow you to take an income tax deduction based on fair market value—subject to adjusted gross income limitations—that can be used in the tax year in which the donation is made, with any excess charitable deductions carried forward for use in the next five years.

The capital gains tax that would be incurred from selling the stock and donating the proceeds can be eliminated, too—increasing the value of the charitable contribution by over 20%.⁴

There is good reason to consider front-loading donations before the end of 2025: the One Big Beautiful Bill Act (OBBBA), enacted in July 2025, introduced new limitations on charitable deductions that will take effect on January 1, 2026. As a result, all else being equal, a charitable contribution made by a top-income bracket taxpayer in 2025 would be more valuable than the same contribution made in 2026. For more insights on the OBBBA, click here. 

If you’re unsure which charity you want to support, but would like to use the deduction this year, consider contributing to a donor-advised fund (DAF). Tax deductions for donations to DAFs are immediate, but the payout from the DAF to another charity can be made at a later date. 

For additional benefit, once appreciated stock is donated, you can replenish the portfolio with cash to purchase the same or similar stock.⁶ This will create fresh tax lots with higher cost bases, complementing the tax benefit of charitable gifting by leading the way for additional tax-loss harvesting opportunities. To learn more about how the combination of charitable gifting and cash contributions can create more opportunities for loss harvesting while amplifying your charitable impact, read this article.

3. Can you cash out on long-term gains and buy new investments? Fresh tax lots may benefit from short-term volatility

If you anticipate short-term realized gains—from hedge funds, for example—you may benefit from selectively realizing long-term gains from appreciated securities in the portfolio (preferably those with highest market value, but least magnitude of appreciation from their cost basis).

If you invest the proceeds into fresh tax lots, this increases the potential for capturing short-term losses in case of subsequent near-term volatility. Those short-term losses can then offset realized short-term gains, which are taxed at higher rates than what you paid on the initial realization of long-term gains.

The benefit is the spread between your long-term capital gains tax rate and your short-term capital gains tax rate—so this approach is especially attractive for investors with a significant difference between their long-term and short-term capital gains tax rates.

To understand the potential benefit of this approach, here’s an example.

• An investor has an ossified tax-loss harvesting account. One of the holdings in the account is Stock A, with a price of $105, held at a long-term gain of $5 (so the cost basis is $100)
• The investor anticipates a $20 future short-term gain from other investments on their balance sheet, taxed at 40.8%⁷

As you can see, the benefit from this approach is $5.78 – $3.23 = $2.55. The lower long-term tax rate reduces your upfront tax burden, and harvesting short-term losses from new tax lots can provide additional tax advantages if those losses are used to offset short-term gains elsewhere on your balance sheet.

Of course, there are trade-offs and risks, including the immediate tax liability from realizing the long-term gain, any transaction costs associated with selling and reinvesting, and the risk that direction and volatility in the markets won’t be conducive to harvesting losses from the reinvested proceeds. The decision to realize long-term gains should be guided by your tolerance for current taxes, need for future potential capital losses and comfort with the risks of this approach.

Connect with your advisor

Your individual goals and vision for your wealth will determine which of these techniques might work best for you. Reach out to your J.P. Morgan team for more information on extending the tax benefits of tax-loss harvesting strategies.