Contents
Introduction
The Tax Loss Harvesting rebalance is sell-only type of rebalance where securities in taxable accounts that meet tax loss harvesting thresholds are sold to harvest those losses. Any cash generated is not immediately reinvested.
This rebalance type can be confused with the Tax Loss Harvesting & Rebalance. The difference between the two is the reinvestment of available cash. The following table compares these two rebalance types:
| Tax Loss Harvesting Rebalance | Tax Loss Harvesting & Rebalance |
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| A sell-only type of rebalance where securities in accounts that meet the tax loss harvesting thresholds set within the accounts are completely liquidated. | A buy-and-sell type of rebalance where securities in taxable accounts that meet the tax loss harvesting thresholds set within the account are sold and the proceeds of those sells, as well as any cash available for trading in the account, are reinvested into the account model. |
For more information on using Advisor Rebalancing for tax loss harvesting, see Tax Loss Harvesting and Tax Management Strategies and Using Advisor Rebalancing for Tax Loss Harvesting.
Rebalance Logic
The Tax Loss Harvesting rebalance is used to harvest losses within clients' accounts. First, Advisor Rebalancing examines the accounts you specify and finds the securities with losses that meet or exceed tax loss harvesting thresholds set within in those accounts. Then, using these thresholds, as well as other system and account-level settings, Advisor Rebalancing recommends sales of specific lots, then sells those securities and applies the Tax Optimization closing method.
The specific tax loss harvesting thresholds are set at the account level, so this rebalance can only be done in taxable accounts where you've set these thresholds. See Applicable Settings for more information on the various settings that affect this rebalance.
Notes
During the rebalance, any min/max settings for individual models are ignored.
When To Use
The Tax Loss Harvesting Rebalance is useful for quickly harvesting losses across accounts without having to find losses in individual securities within the account. Because this rebalance generates cash that does not get reinvested, this rebalance is useful for buying back into the same securities you sold after the wash sale period has ended.
This rebalance is not available as an account default.
Applicable Settings
The following is a summary of the settings that apply to this rebalancing type:
| Setting | More Information |
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System Settings: Rebalance Settings |
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Tells Advisor Rebalancing how to calculate deviation away from model targets when determining buy and sell order. Absolute deviation uses the absolute calculation of deviation. Relative deviation calculates deviation relative to the parent model's target. |
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System Settings: Tax Loss Rebalance Settings |
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Account Settings: Rebalance & Trade Settings |
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These are ignored in a Tax Loss Harvesting rebalance. |
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These are ignored in a Tax Loss Harvesting rebalance. |
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This is ignored in a Tax Loss Harvesting rebalance. |
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If the account is set to Yes, you will not be able to complete the rebalance. |
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The rebalance adheres to account-specific restrictions like Range to Hold and any Buy/Sell Restrictions. |
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Account Settings: Account Configuration |
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When using a tax loss harvesting rebalance option, the closing method used will automatically be Tax Optimization, provided the trade file you use supports VSP trading. |
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These are ignored in a Tax Loss Harvesting rebalance. |
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Account Settings: Advanced Settings |
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Set the loss threshold for tax loss harvesting. If both the percentage loss and dollar amount loss thresholds are met, Advisor Rebalancing will recommend a sell during this rebalance. |
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Securities |
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The rebalance adheres to security-specific restrictions like Hold Do Not Trade. |
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The rebalance adheres to security-specific custom settings like Custom round lot or Custom trade price. |
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Best Practice
It is important to review any warnings under Rebalance Status Messages on the Rebalance Summary. These warnings let you know about any applicable account, security, or system-level settings.
