What to Do When Tax-Loss Harvesting Isn’t an Option
Tax-loss harvesting is a familiar tool for many investors—pairing gains with losses to help reduce taxes in a given year. But in extended periods of market growth, when portfolios have appreciated significantly, losses may be scarce. For some, the challenge is not harvesting losses at all, but deciding how to manage large, concentrated gains without triggering a tax bill they’ve long postponed.
This can create hesitation. A position that has grown substantially may feel too costly to sell, especially if you have other income sources or don’t urgently need liquidity. Yet staying concentrated can bring its own risks and emotional strain. Market volatility may cause uncertainty or hesitation about the next step. When this happens, having a structured plan—and a team to help evaluate options—becomes essential.
One practical approach is to create a “tax budget.” This means determining in advance how much gain you are willing to recognize each year to begin diversifying. For example, you may decide to realize taxes on 20% of a position or 20% of the unrealized gain annually. Depending on the size of the position, it may take several years to fully rebalance, but the process creates clarity and discipline—turning a difficult decision into a manageable, multi-year plan.
Gifting appreciated assets is another effective strategy. Transferring assets to someone in a lower tax bracket—such as a child early in their career—can reduce the overall tax impact and provide meaningful financial support. Because the recipient may pay lower taxes on the gains, the gift can be more efficient and more valuable than giving cash alone.
For those with charitable goals, donating appreciated assets to a qualified exempt organization can eliminate capital gains on the gifted position. A charitable trust may also help spread out recognition of gains in a manner similar to an installment sale, while potentially providing income that is higher than what the original growth-only investment produced.
Pre-tax planning can also help. Traditional IRA and 401(k) contributions may offset some taxable income when gains are recognized. Self-employed individuals may have even more flexibility—Cash Balance Defined Benefit plans can allow significant pre-tax contributions. In many cases, it is possible to contribute around $300,000 and reduce current taxes by as much as $105,000 for those in a 35% federal bracket. These strategies can be especially valuable when paired with a planned asset-sale.
Certain specialized strategies, typically available to accredited investors, are designed to generate capital losses that may offset future gains. These may be helpful when preparing for a business sale, stock sale, or other large taxable event. While not appropriate for everyone, they are worth evaluating as part of a coordinated plan.
Qualified Opportunity Zones offer another option. When structured correctly, they may allow deferral of realized capital gains. Under current rules, these investments may also provide a 10% step-up in the invested gain amount and the potential for unlimited capital gain exclusion on appreciation if the investment is held beyond 2026 and other requirements are met. For investors managing large embedded gains, this can provide additional flexibility.
The key is timing and awareness. Many investors learn about these tools after a taxable event has already occurred. Discussing your situation with trusted professionals—financial, legal, and tax—can reveal options you may not have considered. A coordinated team can help you balance diversification, liquidity needs, tax efficiency, and long-term goals, giving you a clearer roadmap forward.
If you are facing large unrealized gains and unsure where to begin, starting the conversation now can help. With the right plan and the right guidance, managing gains can feel more strategic and less overwhelming.
Waverly Advisors, LLC (waverly-advisors.com) is an investment adviser registered with the Securities and Exchange Commission, with clients throughout the US and offices in multiple US locations. If you have questions regarding the POWER OF PLANNING or the content in this article or would like to discuss your particular financial or investment situation, don’t hesitate to get in touch with Steven Gronceski, CFP®, AIF®, Partner and Wealth Advisor at Waverly Advisors, LLC, at 312.262.6300.
Important Disclosure: Waverly Advisors, LLC (“Waverly”) is an SEC-registered investment adviser. A copy of Waverly’s current written disclosure Brochure and Form CRS (Customer Relationship Summary) discussing our advisory services and fees remains available at https://waverly-advisors.com/. Please Note: The scope of the services to be provided depends upon the needs of the client and the terms of the engagement. You should not assume that any information provided serves as the receipt of, or as a substitute for, personalized investment advice from Waverly Advisors, LLC (“Waverly”). This article reflects information available at the time it was written and should be used as a reference only. Talk to your Waverly advisor, or a professional advisor of your choosing, for the most current information and for guidance specific to your situation.
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