Mark’s $153,000 tax-loss-harvesting example

Mark argues that the familiar $3,000 annual deduction understates what systematic tax-loss harvesting can do over a 25- or 30-year retirement. His illustrative couple, Jim and Linda, hold $1.8 million in taxable investments and harvest an average of $20,000 in losses each year for 25 years—a total of $500,000. Of each year’s losses, $17,000 offsets capital gains from rebalancing or retirement spending, saving $2,550 at a 15% rate; the remaining $3,000 offsets ordinary income, saving $660 at a 22% rate. That is $3,210 annually, or $80,250 over 25 years. If those savings remain invested and earn a hypothetical 5% annually, Mark estimates over $153,000 of additional portfolio wealth. The $153,000 includes the accumulated savings; it is not added to the $80,250.

His third mechanism concerns what happens to deferred gains. Harvesting lowers cost basis, potentially creating a capital-gains bill if the investments are sold during life. Mark says the step-up in basis at death under IRC section 1014 can erase those deferred gains for heirs, making the benefit of keeping the tax savings invested permanent. He acknowledges that taxable assets can receive a step-up without harvesting; harvesting is what generated the extra invested wealth in his example. The outcome depends on the couple’s circumstances and estate plan.

Implementation has three traps: the wash sale rule bars buying a substantially identical security within 30 days before or after a loss sale—a 61 day window; an automatic dividend reinvestment into one in a traditional IRA or 401k can make the loss permanently unusable; and a spouse’s purchase can also trigger a wash sale. Losses cannot be harvested inside an IRA or Roth IRA: the strategy needs a taxable brokerage or taxable trust account. Mark also says offsetting gains may keep a married couple’s modified adjusted gross income below the 2026 $218,000 IRMAA threshold, avoiding a Medicare surcharge of $2,000 or more per year.

For investors with $1.5 million or more in taxable investments, Mark recommends reviewing unrealized gains by tax lot—especially if they exceed $10,000—checking dividend-reinvestment settings across accounts, harvesting throughout the year rather than only in December, and coordinating the investment and estate plans with a CPA or wealth advisor.