Tax‑loss harvesting still usable—caveats
New coverage says tax‑loss harvesting in mutual funds still works in 2026 but has pitfalls—poor timing or excessive harvesting can reduce long‑term compounding and backfire if you realize gains too early reported. The nuance matters for tech employees with concentrated gains or seasonal equity events who may be tempted to harvest aggressively.
Equity short-term capital gains (STCG) in India are taxed at 20% for transfers on or after July 23, 2024, while long-term capital gains (LTCG) under Section 112A are taxed at 12.5% only on gains above Rs 1.25 lakh. (valueresearchonline.com) A fund-to-fund "switch" is treated as a redemption for tax purposes in India, and any loss intended for use in the current financial year must be realized before March 31 of that year. (valueresearchonline.com) Canada’s superficial-loss rule denies a capital loss if the same or identical property is acquired within 30 days before or after the sale, effectively creating a 61‑day window under Income Tax Act rules that also treats registered plans and affiliated persons as triggers. (shajani.ca) The U.S. wash‑sale rule under IRC §1091 disallows a loss when a “substantially identical” security is bought within 30 days before or after a loss sale, and any disallowed loss must be added to the basis of the replacement shares. (law.cornell.edu) Public tech companies are projected to pay about $40 billion in RSUs this year, and most firms use four‑year schedules with a one‑year cliff followed by monthly or quarterly vesting—patterns that produce recurring concentrated taxable events. (future.com) Vanguard’s analysis found tax‑loss harvesting can boost after‑tax portfolio value roughly 0.5%–4% with a typical outcome near 1% over long horizons, but Vanguard also warns that surrogate purchases can underperform and that wash/superficial rules or mutual‑fund exit loads (commonly ~1% in some schemes) can erase harvesting benefits. (smartasset.com) Investment managers and tax advisers highlight two operational traps for mutual‑fund harvesting: transaction/exit loads and timing around distribution or vesting dates (both can convert a paper loss into a net cost), and regulators require careful record‑keeping because denied losses are often added to the replacement asset’s cost base. (economictimes.indiatimes.com)
