Tax Loss Harvesting: A Silver Lining for High Earners
by Amanda Vaught
Nobody likes logging into their brokerage account and seeing red. When the market dips, whether it’s a broad correction or a specific sector pulling back, the natural instinct is to look away and wait for it to recover.
But for high-earning professionals, ignoring those losses is a missed opportunity. In the tax world, those red numbers can actually be an asset.
If you are earning a high income (specifically over $250,000 as a married couple), you aren't just paying income tax. You are likely also paying the 3.8% Net Investment Income Tax (NIIT) on your investment gains. When you add that to federal and state capital gains taxes, the government’s cut of your investment success can be substantial.
This is where Tax Loss Harvesting comes in. It is the financial equivalent of making lemonade out of lemons.
The Logic: Booking the Loss Without Leaving the Market
The concept is simple, even if the execution requires care. You sell an investment that has lost value to "book" that loss for tax purposes. You then immediately reinvest that money into a similar (but not substantially identical) investment so you stay in the market for the eventual recovery.
By doing this, you create a "tax asset," a loss that you can use to offset capital gains from other parts of your life.
A Hypothetical Scenario: The "Real Estate" Offset
To see how this works in practice, let’s look at a scenario inspired by the kinds of complex decisions our clients face. Let's call our client Holly.
Holly is a successful Interior Designer living in the city. She decides she wants to buy a piece of land to build a vacation home. To fund the purchase, she sells $150,000 of company stock she has held for years.
Because that stock had grown significantly, she realizes a $50,000 long-term capital gain.
In 2026, if Holly’s income is high, she faces a 15% or 20% capital gains tax, plus the 3.8% NIIT. That $50,000 gain could trigger a tax bill of roughly $9,400 to $11,900 (depending on her specific bracket). Holly is cash-poor because she just put all her liquidity into the land, so writing a check to the IRS next April is going to hurt.
Enter Tax Loss Harvesting.
Later that same year, the broader stock market takes a dip. Holly’s S&P 500 index fund is temporarily down. We advise Holly to sell a portion of that fund to realize a $50,000 loss. She immediately reinvests the cash into a different fund to stay invested.
The Result:
The $50,000 loss from the index fund cancels out the $50,000 gain from the company stock.
The $11,900 tax bill disappears.
Holly keeps her money invested for the recovery.
Everyone’s tax situation is different, so these strategies need to be evaluated in the context of a full financial plan. Contact us for personalized advice.
Why You Need to Watch the Calendar
Timing matters. Many people wait until December to look at their taxes, but by then, the market might have recovered, and the opportunity to harvest losses is gone.
We encourage clients to look at this in the fall harvest season. As I explain in our "Money Move of the Month" video, reviewing your bracket and your portfolio before the holiday rush allows you to be proactive rather than reactive.
Watch: Financial Harvest
In this video, I break down exactly why autumn is the perfect time to review your portfolio for tax opportunities. We discuss reviewing your tax bracket and how timely moves can position you ahead of the curve before year-end.
Don't Let a Down Market Go to Waste
Volatility is the price of admission for investing, but you don't have to just grit your teeth and bear it. You can use it to lower your tax bill.
If you have a portfolio with unrealized losses and want to know if harvesting them makes sense for your tax situation, let’s talk. We can help you turn a temporary dip into a permanent tax saving.
