Bond prices have declined as 10-year and 30-year Treasury yields reached their highest levels in 24 years this week, with yields subsequently retreating following a weaker-than-expected jobs report. Investors holding individual bonds, bond mutual funds, or exchange-traded funds purchased when yields were lower may now face unrealized losses. Financial professionals indicate that selling these investments in taxable accounts could provide a tax-planning opportunity.
The strategy known as tax-loss harvesting involves selling an investment at a loss to create a realized capital loss that can offset capital gains elsewhere in a portfolio. Experts suggest that reviewing taxable fixed-income holdings now offers more flexibility than waiting until December, when tax planning becomes concentrated. According to wealth advisors, tax-loss harvesting opportunities should be examined regularly as a method to achieve tax efficiency while potentially refining portfolio allocations.
Investors pursuing tax-loss harvesting must be aware of IRS wash-sale rules, which can disallow a loss if a substantially identical security is purchased within 30 days before or after the sale. This restriction applies across all account types, including retirement accounts. However, investors may transition to different fixed-income funds that meet their objectives without triggering wash-sale violations, though determining substantially identical investments can be complex and may warrant professional guidance.
Tax-loss harvesting may not be appropriate for all investors. Those with bond ladders held to maturity may find reinvesting maturing bond proceeds into higher-yielding issues sufficient. For others, current yield levels present an opportunity to reassess fixed-income allocations and rebalance portfolios. Experts recommend evaluating time horizon, income needs, interest-rate risk, and diversification before making changes. When considering trades, investors should weigh transaction costs, tax consequences, and portfolio risk level to ensure decisions support overall investment strategy rather than being driven solely by tax losses.
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