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Riskalyze Trading scans every client account across your entire book of business to make sure that things are staying on track. When Automated Tax Loss Harvesting (ATLH) is enabled, Riskalyze Trading will monitor every taxable account you manage and look for opportunities to realize capital losses over your dollar threshold.
In This Article:
- Enabling Automated Tax Loss Harvesting
- Creating Replacement Rules
- Wash Sale Prevention
- Switchback Trades
Enabling Automated Tax Loss Harvesting
By default, Automated Tax Loss Harvesting will be disabled. To enable ATLH, navigate to the Trading Dashboard and click Settings. From there, you can enable ATLH.
Next, you can set a harvesting threshold by typing a dollar value into the field.
ATLH can be disabled at any time by returning to this menu and turning the toggle off.
Note: While most rebalancers harvest losses whenever a position loses a percentage of it’s principal value, ATLH focuses on a tax-savings threshold instead. For example, if you were to set a $1,000 loss threshold, then a position would only be sold if the sale resulted in a $1,000 tax savings for the client.
ATLH assumes a long term capital gains rate of 20%, and a short term capital gains rate of 33% when looking for opportunities to offset a clients tax liability.
Creating Replacement Rules
When ATLH has been enabled and a loss threshold has been set, harvesting opportunities will be surfaced in your trading inbox. If you choose not to configure any replacement rules, ATLH will keep the proceeds from a Tax Loss Harvesting (TLH) sale in cash for 31 days before buying back into the trade target. However, some advisors prefer that the proceeds of a harvest trade be used to purchase another investment during the 31 day wash sale window.
With replacement rules, you can tell Riskalyze Trading how to handle the proceeds of a TLH sale, or which securities should never be harvested.
To create a replacement rule, navigate to the Trading Dashboard and click Settings. You can then start by selecting one or more primary securities and saving them into a primary group.
Next, you can choose how you’d like to handle the proceeds of any harvest trades created for each group of primary securities. The three options are:
- Harvest to cash - Any time one of the primary securities is harvested, Riskalyze Trading will hold the proceeds in cash for 31 days.
- Harvest to securities - Riskalyze Trading will use the proceeds from a TLH sale to buy into a replacement. If the first replacement in the list can not be used, the secondary replacement will be used instead.
- Do not harvest - Riskalyze Trading will not generate or harvest sales on the securities in the corresponding primary group.
Note: When harvest to cash or harvest to securities is selected, Riskalyze Trading will use the proceeds of any harvest sales to buy any underweight securities in the target. The remaining cash will either be held as excess cash, or used to buy a replacement.
Wash Sale Prevention
When ATLH is enabled, wash sale prevention will automatically be enabled for all taxable accounts. Wash sale prevention prevents taxable accounts from buying back into any securities harvested within the previous 30 days.
Note: Wash sale prevention will prevent taxable accounts from buying back into a security that was sold at a loss within the previous thirty days regardless of whether or not the sale was for TLH purposes. Wash sale prevention will also prevent you from selling a security at a loss that was bought within the previous thirty days. This means rise cash rebalances, full rebalances, and risk number rebalances could be impacted by wash sale prevention.
For example, if a model reallocation results in the sale of AAPL at a loss, and AAPL is added back into a model within the next thirty days, Riskalyze Trading will not allow AAPL to be repurchased.
31 days after a TLH trade is approved and processed, Riskalyze Trading will generate a switchback trade list in order to buy back into the target allocation. If replacement securities were used in the original TLH trade, the switchback trade-list will include sells for the replacements.
Switchback sells will be generated regardless of the potential short term capital gains impact that selling these positions will have. If you’d prefer not to realize a short term capital gain, you can modify the trades by selecting “Avoid short-term capital gains” from the Tax Management tab, or dismissing the trade-list altogether.
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