By Robert Rapier
Editor-in-Chief, SHALE Magazine
Originally published in Investing Daily
Abstract
With 2025 drawing to a close, investors are reviewing portfolios that reflect a year of market volatility, sector imbalances, and fiscal headwinds. While some sectors, notably technology and communications, have soared, others have stagnated or declined. This article outlines tax-loss harvesting strategies that can turn underperforming holdings into a strategic advantage. Readers will learn how to leverage losses to offset capital gains and reduce tax liabilities before year-end.
Introduction: A Tale of Two Markets
October is historically a volatile month for equities, and 2025 was no exception. It is often a time when mutual funds, particularly those with fiscal year-ends in October, offload underperforming assets. This puts additional pressure on struggling stocks. However, the start of November brings seasonal optimism. Historically, November is one of the strongest months for stocks, offering a potential rebound window before the year ends. That makes it an opportune moment for investors to implement tax-loss harvesting strategies.
Understanding the Tax Landscape
Investors who have realized gains this year—especially outside tax-advantaged accounts like IRAs or 401(k)s—should remember that those gains are taxable. The IRS taxes short-term capital gains, from assets held less than one year, as ordinary income. Long-term capital gains, from assets held over a year, are taxed at preferential rates of 0%, 15%, or 20%, depending on income level. Pairing capital gains with realized losses is an effective way to minimize the tax burden.
What Is Tax-Loss Harvesting?
Tax-loss harvesting is the process of selling securities at a loss to offset capital gains elsewhere in your portfolio. It’s a powerful strategy that reduces your taxable income, particularly useful in years when you’ve taken profits. By using realized losses to offset realized gains, investors can reduce or eliminate capital gains taxes for the year.
Strategic Planning: Act Before the Rush
By beginning this process in early November, investors can avoid the year-end rush, making thoughtful and strategic adjustments to their portfolios. Delaying until December, when many others are also trying to rebalance for tax purposes, may lead to poor execution or missed opportunities.
Case Study: Sector Swap in Practice
Consider the following example: An investor holds shares of LyondellBasell Industries (NYSE: LYB), down roughly 36% in 2025 due to weak global demand in the chemical sector. Selling this holding now allows the investor to realize a capital loss, which can be used to offset gains in other parts of the portfolio.
To maintain exposure in the same sector, the investor might consider purchasing Dow Inc. (NYSE: DOW), another chemical industry heavyweight also down nearly 37% year-to-date. This maintains sector alignment while capturing the tax benefit. It is important, however, to avoid triggering the wash-sale rule, which prevents deducting losses on securities repurchased within 30 days.
Rules and Limitations
Investors can use up to $3,000 in net capital losses annually to offset ordinary income, with unused losses carrying forward indefinitely. However, it’s important to note that tax-loss harvesting does not apply to tax-deferred accounts such as IRAs or 401(k)s. Always consult with a qualified tax advisor, especially when managing multiple accounts or navigating complex portfolio changes.
Final Thoughts: Turn Losses Into Gains
While no investor enjoys seeing red in a portfolio, those paper losses can become real tax savings with proper timing and strategy. November’s historical strength provides a potential cushion for exiting losing positions. With some planning, these losses can help reduce your 2025 tax bill and set the stage for a stronger 2026.
In short, don’t wait until the final trading days of the year to begin. Use November wisely—harvest your tax losses with precision and purpose.
References
Rapier, R. (2025, November 4). Don’t waste your 2025 losers—Harvest them for tax gains. Investment Daily. Retrieved from https://www.investmentdaily.com
