The 10-year and 30-year Treasury yields recently reached their highest levels in 24 years, prompting some investors to face unrealized losses in their bond investments. Financial experts suggest that selling these underperforming bonds in taxable accounts can convert unrealized losses into realized capital losses, which can then be used to offset capital gains elsewhere in a portfolio.
Marianela Collado, a senior wealth advisor, emphasizes the importance of regularly reviewing taxable fixed-income holdings for tax-loss harvesting opportunities, rather than waiting until year-end.
Investors should ensure they sell investments below their tax cost basis and be mindful of the IRS wash-sale rule, which can disallow tax losses if similar securities are purchased shortly after the sale. While tax-loss harvesting can be beneficial, it may not be suitable for all investors, particularly those with a strategy to hold bonds to maturity.
Experts recommend that investors reassess their fixed-income allocations in light of current yield levels and consider their individual financial situations before making trades