Tax Strategies

Tax-loss harvesting could mean more savings

From Vanguard Personal Advisor Services®

Save on taxes and have more to invest

Taxes can drain away about 9% of your returns every year. Compounded over time, that's a huge opportunity.*

Our advisors consider taxes every step of the way, from the moment you enroll. As we optimize your portfolio, we'll always choose strategies that attempt to get you the highest risk-adjusted after-tax return. Tax-loss harvesting is one way we can do that.

A way to keep more—and save more

Tax-loss harvesting can reduce your capital gains taxes by using losses to offset gains, but it also allows you to stay fully invested and aligned with your strategy. The money you save can be reinvested, giving you the chance to greatly increase the value of the savings.

A strategic approach backed by extensive research

Much of the benefit of tax-loss harvesting depends on when and how it’s implemented. We studied 80,000+ combinations of volatility environments and investor profiles to understand how it can potentially benefit investors like you.**

Part of a suite of tax strategies that can help maximize potential growth

By combining a smart tax-loss harvesting strategy with other tax strategies like smart asset location and strategic drawdown, a Vanguard advisor can help ensure you're keeping more of your money working toward your goals.

How does automatic tax-loss harvesting work?

Our proprietary technology scans your portfolio every day looking for opportunities in Vanguard ETFs that have gone down in value.***

We sell lots of those Vanguard ETFs that meet our research-based criteria and reinvest the money in a similar investment (or use it to rebalance if needed), keeping you fully invested and your allocation on track.

The losses can be used to offset capital gains you have for the year. Anything additional can be used to reduce your regular taxable income (up to $3,000 per year) or to offset gains in future years.

At tax time, you can reinvest your tax savings and let compounding go to work. (This step is optional, but it will give you the most long-term benefit.)

Here’s a tax-loss harvesting example

1 Investor B will owe tax on a larger portion of the balance because tax-loss harvesting changes the cost basis of the investment and because they reinvested the tax savings in this example, leading to additional earnings.

Source: Vanguard.

Notes: This is a hypothetical illustration. Capital gains are assumed to be eligible for the current long-term capital gains treatment and taxed at a 20% rate. Investor B is assumed to offset ordinary income with the tax-loss harvesting transaction, which is taxed at a hypothetical 30% rate.

Tax-loss harvesting at a glance

See how we use tax-loss harvesting to keep your portfolio more tax-efficient.

"It’s a silver lining that can help you feel more in control"

Minimize your taxes with powerful tax strategies ...

When it comes to tax strategies through Vanguard Personal Advisor Services, tax-loss harvesting is just the beginning.

An advisor can tailor strategies to meet your individual situation based on the types of investments you own, your tax bracket, where you are in your investing life cycle, and your ultimate plans for your money.

Here are some additional tax strategies we can use:

  • Moving your investments into the service "in kind" rather than selling them (which can trigger a large tax bill).
  • Using tax-efficient investments for the core of your portfolio—including investments specifically designed to minimize taxes if you're in a high tax bracket.
  • Placing any active funds and other higher-tax investments in tax-advantaged accounts to defer or eliminate those taxes.
  • Drawing down your assets in tax-smart ways, including Roth conversions and charitable giving strategies.

... Combined with investment strategies from an industry leader

By combining tax-loss harvesting and other tax strategies with enduring, research-based investment strategies, you could increase your confidence you'll reach your goals. Throughout your relationship with us, our advisors are backed by Vanguard's proven investment methodology and a world-class team of portfolio construction experts.

See more about how we work

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Frequently asked questions about Vanguard Personal Advisor Services tax-loss harvesting

Who could benefit

An advisor can talk with you about how much tax-loss harvesting could benefit you. Generally, you'll see the most positive impact from tax-loss harvesting if you:

  • Have a substantial portion of your money invested in taxable accounts.
  • Are in a higher tax bracket than you'll likely be in the future.
  • Have purchased your investments at a variety of prices over time and have capital gains to offset using losses harvested by the service.
  • Have a substantial portion of your investments advised by Vanguard Personal Advisor Services.

Yes. As with all aspects of investing, tax-loss harvesting comes with some risk.

  • There's a risk you may not see any benefit (or you may experience a loss) if:
    • The Vanguard surrogate funds bought with proceeds from tax-loss harvesting sales underperform the Vanguard funds sold.
    • You're in a higher tax bracket in the future.
    • You don't reinvest your tax savings, or the return on reinvestments is negative over the long term.
  • There's also the risk that your tax-loss harvesting sales may violate the IRS wash-sale rule. If you buy the same or a "substantially identical" investment within 30 days before or after you sold at a loss, you won't be able to claim the loss. We'll attempt to use investments that won't be considered substantially identical by the IRS when we’re tax-loss harvesting.†† However, it's possible that transactions outside of your advised accounts could cause wash sales.

Tax-loss harvesting limits allow you to offset up to all your capital gains with losses during the same tax year, plus up to $3,000 of ordinary income. If there are remaining capital losses, you can carry forward those losses indefinitely to offset future gains. The bottom line is that you need to have realized capital gains to offset in order to truly benefit from tax-loss harvesting.

How it works

We've done extensive research and analysis to determine an optimal methodology for tax-loss harvesting. Our automated technology scans your portfolio every day the market is open to find opportunities for tax-loss harvesting in certain Vanguard ETFs, and we'll recommend selling investment lots of those ETFs that meet our research-based criteria.*** 

We'll first check if your portfolio needs rebalancing. For example, before we replace a stock fund investment with another stock fund, we'll make sure your overall portfolio isn't overweighted in stocks. If it is, we'll use the proceeds from the sale to buy more of the underweighted asset class. If there’s no need to rebalance, we'll buy a Vanguard Replacement ETF††† that's similar to the sold investment but not substantially identical.

Get more for your money

Find out how a Vanguard advisor can help with personalized planning and strategies.

*Source: Morningstar's tax-cost ratio as of November 2021, based on the 10-year average returns (17%) and median tax-cost ratio (1.45%) for large-blend funds. Calculation is based on the highest tax rates in effect at the time of the distribution.

**Vanguard, Tax-Loss Harvesting: A Portfolio and Wealth Planning Perspective (PDF) (Kevin Khang, Ph.D., et al., 2020).

***On days your portfolio has rebalancing or other trading activity scheduled or in progress, we'll pause checking for tax-loss harvesting opportunities. Details on which Vanguard ETFs can be harvested will be available in the Tax-Loss Harvesting Addendum to Your Service Agreement for Vanguard Personal Advisor Services that you'll discuss with your advisor.

†Vanguard is investor-owned, meaning the fund shareholders own the funds, which in turn own Vanguard.

††Note that when making other non-tax-loss-harvesting trades in your portfolio in order to align with our investment methodology, we may choose to cause a wash sale in certain circumstances.

†††Details on which Vanguard ETFs can be harvested or used as Vanguard Replacement ETFs will be available in the Tax-Loss Harvesting Addendum to Your Service Agreement for Vanguard Personal Advisor Services that you'll discuss with your advisor. For more information about Vanguard funds or ETFs, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

For more information about Vanguard mutual funds or ETFs, obtain a mutual fund or  ETF prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

We recommend that you carefully review the terms of the Tax-Loss Harvesting Addendum to Your Service Agreement for Vanguard Personal Advisor Services and consult a tax advisor before enrolling in tax-loss harvesting in your advised accounts. We do not provide legal or tax advice, and none of the information provided on this webpage is intended as tax or legal advice.

All investing is subject to risk, including the possible loss of the money you invest.

Advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company. VAI is a subsidiary of The Vanguard Group, Inc., ("VGI"), and an affiliate of Vanguard Marketing Corporation. Neither VAI nor its affiliates guarantee profits or protection from loss.