Egan: Tax loss harvesting acts as structural arbitrage on tax rates
Dan Egan · Dan Egan – Better Investment Outcomes (Capital Allocators, EP.23) · Aug 28, 2017 · at 20:23
Dan Egan, Director of Behavioral Finance and Investing at Betterment, explains how automated tax loss harvesting arbitrages ordinary income tax rates against future capital gains rates.
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“So generally speaking, you are using investment losses to offset ordinary income. Ordinary income is your highest marginal tax rate. You embed a tax gain in the portfolio that you then pay off generally 20 or 30 years in the future, and that's going to be the long-term capital gain rate, which is generally about half of your ordinary income. So there is a straight arbitrage play in tax rates.”
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