The market may be down, but that doesn’t mean you have to lose out. In this video, Brian Jones, CFP®, explains how to strategically use investment tax losses to offset gains and reduce your tax bill—helping you keep more of what you earn. Watch now to learn how tax loss harvesting can work for you.

Brian T. Jones, CFP®
Brian T. Jones, CFP®Chairman, Financial Adviser, Principal

Brian T. Jones:

Hi, I’m Brian Jones and I’m one of the partners here at CJM Wealth Advisers. In this episode we’re going to be talking about investment tax losses. What is an investment tax loss? What type of an account can use in investment tax loss? How do you use tax losses on your income tax return? And finally, I’ve got some actual client examples where we have identified potential tax losses. Now, before we get started, there’s the compliance related issue. So I’m going to put a disclosure up there on the presentation. Past performance may not be indicative of future results. The following is not considered to be investment advice nor a recommendation to buy, sell, nor hold a particular security. Examples shown are for illustrative purposes only. At CJM, we are not CPAs, please consult your tax advisor directly if you have additional questions or concerns regarding your actual tax liability.

Now, from an investment perspective, 2025 has been a real challenge. The first month and a half produced positive returns, but over the last four weeks, all the major indices have turned negative. Unfortunately, in markets like this, what can happen is that the values of a lot of the assets will have declined from maybe where a client recently purchased them. I always remember what my father taught me about the market many years ago. Dad would say that you take whatever the market gives you and when the market gives you lemons, sometimes you just have to make lemonade. But what dad was really trying to instill in me at that particular point in time is, sometimes when presented with a situation like this where market values are down, you may have to dig a little bit deeper for opportunity. This is where the idea of investment tax losses comes into play.

Now here at CJM, every single quarter, we go through every client’s account, we go through every individual account that they have and every single holding, and one of the things that we are always looking for is investment tax losses, because there is an opportunity in there if we can be strategic about claiming the investment tax loss and then the client has the ability to apply it to the current year tax return under the right set of circumstances. Okay, so first off, we need to note that an investment tax loss arises when an investment is worth less than what you paid for. So let me show you what I mean by that. You purchase asset XYZ for $400 a share, but it’s now worth $250 a share. This represents a $150 tax loss. So this is a great example of what a tax loss is.

Now, what are the types of accounts that you can use in investment tax loss in? The types of accounts we can use this in happen to be taxable accounts. When I say taxable accounts, I’m talking about an individual account, a joint account, which may be with your partner or spouse or a trust account. These are really primarily the three accounts that we would be looking at for harvesting tax losses. The types of accounts that do not work for this type of a strategy would be retirement accounts, things like IRA accounts, Roth IRA accounts, 401(k) plans, 403(b) plans, your TSP plan. Any type of retirement account, it’s really not possible to claim a tax loss on your tax return, it’s only in taxable accounts. So how do we actually claim a tax loss on a tax return? Keeping this as simple as possible, if you have $30,000 of taxable gains inside your joint account, but you also sold assets during the same calendar year and that generated let’s say $40,000 in tax losses, those losses would more than offset the $30,000 in gains.

In addition to not having to pay tax on the $30,000, there’s an additional $10,000 of losses there. Under current IRS rules, $3,000 of those losses may be applied to the current year tax return and the additional $7,000 in losses that has not yet been used can actually be used in subsequent years until the loss is completely claimed. This is the beauty of this investment tax loss strategy. It’s very simple, but if it’s done properly, this can reduce your tax liability not just in the current year, but also in subsequent years as well. That’s what I absolutely love about this strategy. We have some real world examples here for you of actual client tax losses. Now, this is a client’s trust portfolio. You can see over on the left-hand side, you can see the date when this asset was purchased. It was purchased on December 17th, 2020, and I’m looking at the Calvert Equity position.

Calvert Equity is a large cap growth position. It is a fund that we currently use inside some client portfolios, not all of them. And in this particular instance, the client back in December of 2020 paid over $145,000, that’s the total cost column there. They paid over $145,000 for this particular asset. Now you can look over two more columns over under market value, and you can see that the current fair market value of this asset is a little over $140,000. So again, this is an example where the price that we paid for the asset, which was over $145,000 exceeds the current fair market value of $140,000. Now in this case, we’re talking about a loss that’s approaching $4,800. That was the first example, I have another example. As you can see from this example, the client inherited Bank of America stock back in 2003. In this particular instance, client’s parent died and she had a fairly decent size holding in Bank of America stock.

And at her death, the stock passed from her to her daughter. And in this particular instance, at the date of the mother’s passing, the stock was worth a little over $39,000. Now, if we look at the value today, 20 plus years later, because you can see that the client’s date of death is actually shown there August 16th, 2003. So we can actually take a look at the value of the stock today, and we can see that again, the current market value is less than the actual cost basis of the holding. So this is another example of you have a capital loss here. In this case, this is a long-term capital loss because it was held over 20 years of almost $5,800 in this particular instance. This is another example of an investment tax loss that could be sold and used to offset any gains inside the client’s portfolio.

All right, I’ve got a final graphic here for you. This particular example, it’s in a client’s trust portfolio. And in particular I am looking at the Microsoft stock holding, which was bought in 2021 as well as the Salesforce holding, which was also purchased in 2021. And what you can see with these two stocks, they’re purchased for roughly the same amount of money, about $15,000 plus or minus, but the stocks have gone in different directions at this particular point in time. The Microsoft holding is worth a little bit more than what it was originally paid for, so there’s a gain on this holding in this particular instance. But the Salesforce holding is actually worth substantially less than what was originally paid for it. The original purchase price on the Salesforce was about $15,000, but it’s currently worth only $10,000. So again, you’re looking at about a $5,000 in this case.

Again, it’s a long-term capital loss that again, could be used to offset any gains inside the client’s portfolio. These are some great examples of client portfolios with existing holdings, and it didn’t matter whether I was looking at a mutual fund or I was looking at individual stocks. But again, it’s possible in any type of a market, whether it’s the current sell off that we find ourselves in here in 2025, or maybe it’s a really difficult down year, like 2022. The assets just simply may not look very good in the time period we’re looking at. And that does present us with an opportunity that if we are strategic about it, we can take advantage of the loss, claim it, use it for income tax purposes, and we can set it aside if we can’t use it all up in the current tax year.

So, to recap, tax loss harvesting means in down markets, we’re looking for the opportunity to lock in investment losses, and in turn, we use those losses to offset future long-term capital gains. This helps lower our overall tax bill in the current year as well as maybe as in subsequent years. And that just means at the end of the day, you’re going to keep more of what you earn, which is how it should be. Now, if you have questions about this presentation or anything you’ve seen in this video, please do not hesitate to email or give us a call at CJM. We’d be happy to discuss your situation with you at any point. I’m Brian Jones and I want to thank you for watching.