Tax Alpha Metric
Continuous algorithmic tax-loss harvesting generates an estimated 1.1% to 1.8% in annualized 'tax alpha' by deferring capital gains liabilities and offsetting up to $3,000 in ordinary income annually.
1. Tax-Loss Harvesting Systematic Guide
When market volatility creates unrealized capital losses in taxable brokerage accounts, selling securities at a loss allows investors to offset realized capital gains dollar-for-dollar. To avoid the IRS 30-day Wash-Sale Rule (IRC Section 1091), capital is immediately reallocated into non-substantially identical correlation proxies (such as switching from an S&P 500 ETF to a Total US Stock Market Index ETF).
2. Long-Term Capital Gains Bracket Math
Federal long-term capital gains rates (0%, 15%, 20%) plus the 3.8% Net Investment Income Tax (NIIT) create distinct marginal tax cliffs. Structuring capital decumulation around the 0% capital gains threshold allows married filers with adjusted gross income below $94,050 (2026 indexed limits) to harvest realized gains completely tax-free.
3. Backdoor Roth IRA Execution Framework
High-income earners exceeding direct Roth IRA income limitations execute non-deductible Traditional IRA contributions converted into Roth status under IRC Section 408A, eliminating lifetime dividend and capital gains taxes on compounded balances.