Tax-loss harvesting is one of the few legal ways to improve your after-tax returns without changing your investment mix. Done consistently, it can add 0.1–0.5% annually to after-tax returns — $500–$2,500/year on a $500,000 taxable portfolio.
How it works in 3 steps
- Identify positions with unrealized losses in your taxable brokerage account
- Sell the losing positions — the loss is "harvested" for tax purposes
- Immediately buy a similar (but not "substantially identical") fund to maintain market exposure
The wash sale rule: the boundary you must not cross
You cannot repurchase the same security (or one substantially identical) within 30 days before or after the sale, or the loss is disallowed. "Substantially identical" applies to same fund but different share class, different ETF from same index issuer tracking same index. Safe substitutions:
- Sell VTI → buy ITOT (different ETF, same total market exposure)
- Sell SPY → buy IVV or VOO (different issuer, same S&P 500)
- Sell VXUS → buy EFA + VWO (international exposure, different funds)
Annual value of tax-loss harvesting
| Portfolio size | Estimated annual TLH value |
|---|---|
| $100,000 | $100–$500/year |
| $500,000 | $500–$2,500/year |
| $1,000,000 | $1,000–$5,000/year |
Automated tax-loss harvesting: the roboadvisor advantage
Betterment and Wealthfront both offer automated daily tax-loss harvesting. They monitor your portfolio daily and harvest losses opportunistically — far more efficiently than manual annual review. The 0.25% management fee they charge is often partially offset by the TLH benefit, especially in volatile years.
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About the author
Enrique 'Kike' Faúndez is an Information Systems and Management Control Engineer from Universidad de Chile, with master’s degrees in Finance from Universidad de Chile and Industrial Engineering from Pontificia Universidad Católica de Chile. He has 15+ years of experience in regulated financial services across finance, operations, and digital product development. He founded CashControlly in Santiago, Chile, with the conviction that personal financial control should not be a privilege, but an accessible and well-designed tool.
- Master's in Finance, Universidad de Chile
- Master's in Industrial Engineering, Pontificia Universidad Católica de Chile
- Information Systems and Management Control Engineer, Universidad de Chile
- AI and ITIL certifications
- 15+ years in regulated financial services
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