The bond market has experienced a significant selloff, with the 10-year treasury yield around 5% and bond prices falling, leading many investors to face unrealized losses in their bond mutual funds or ETFs.
Traditionally, tax-loss harvesting is done at year-end, but experts from American Century Investments emphasize that investors should not wait, as the current fixed-income landscape offers compelling opportunities to manage tax liabilities and improve yield. Notably, the Vanguard Total Bond Market Index Fund ETF (BND) and the iShares Core U.S.
Aggregate Bond ETF (AGG) are both down over 3.5% year-to-date, making them prime candidates for tax-loss harvesting. Financial advisors recommend looking closely at specific positions within portfolios, as individual tax lots may show losses even if the overall position is profitable.
Investors must also be cautious of the IRS wash-sale rule, which disallows tax deductions for losses if a substantially identical security is repurchased within 61 days.
With the Federal Reserve's recent interest rate hikes and fluctuating yields, timing the market for tax-loss harvesting can be challenging, but the current environment suggests that acting sooner rather than later may be beneficial for investors seeking to optimize their tax situations