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Tax Loss Harvesting & Rebalance

Contents

Introduction

Rebalance Logic

When To Use

Applicable Settings

 

Introduction

The Tax Loss Harvesting & Rebalance is buy-and-sell type of rebalance where securities in taxable accounts that meet tax loss harvesting thresholds are sold to harvest those losses. After harvesting losses, the rebalance will use the available cash and reinvest it back into the account's model.

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
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 Tamarac Trading for tax loss harvesting, see:

Rebalance Logic

The Tax Loss Harvesting & Rebalance is used to harvest losses, and then reinvest the cash generated from the sale of losses. First, Tamarac Trading finds the securities with losses in the accounts selected. It then uses available account-level tax loss harvesting thresholds, as well as other system and account-level settings to determine which lots meet the criteria for sale. It then sells those securities and applies the Tax Optimization closing method.

Once cash has been generated in the account, Tamarac Trading uses the same logic as the Buy Only to Invest Cash rebalance to reinvest the cash generated. For the buy side, Tamarac Trading recommends buys for the most underweight security or model first. The Default buy order setting in Rebalancing System Settings dictates the priority of the buy.

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 or accounts.

This rebalance is not available as an account default.

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.

Applicable Settings

Tax Loss Harvesting & Rebalance is affected by various settings across the individual account, individual securities, and system-wide settings. The following is a summary of the settings that apply to this rebalancing type: 

Rebalancing System Settings

Setting More Information

Cash rebalance option

Choose how Tamarac Trading uses cash during the rebalance.

Default buy order

Allows you to define the order in which the rebalance will generate buys.

Use relative deviation/ Use absolute deviation

Tells Tamarac Trading 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.

Sell entire security/Sell only losses

  • Sell entire security.Sells entirely out of a security that is beyond the loss threshold specified on the Accounts Settings page.

  • Sell only losses.Sells only the lots that have incurred losses for the security that is beyond the loss threshold you specified, and will not sell the lots that do not meet the loss criteria or have gains.

Account Settings: Rebalance & Trade Settings Panel

Setting More Information

Sell Based on Tax Optimization

When Yes, Tamarac Trading temporarily ignores model ranks and rebalances to your investment targets at the lowest possible tax cost to the client. It will then ignore ranks and sell losses first, followed by securities with no tax consequences, and then finally, it will sell gains.

Minimum Trade Sizes

These are ignored in a Tax Loss Harvesting & Rebalance.

Minimum Holding Sizes

These are ignored in a Tax Loss Harvesting & Rebalance.

Allow Redemption Fees

This is ignored in a Tax Loss Harvesting & Rebalance.

Restrict All Securities

If this is selected, you will not be able to complete the rebalance.

Security Restrictions

The rebalance adheres to account-specific restrictions like Range to Hold and any Buy/Sell Restrictions.

Account Settings: Account Configuration Panel

Setting More Information

Round Lot Size

These are ignored in a Tax Loss Harvesting & Rebalance.

Account Settings: Tax Management Panel

Setting More Information

Closing Method

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.

Tax Loss Harvesting Settings

Set the loss threshold for tax loss harvesting. If both the percentage loss and dollar amount loss thresholds are met, Tamarac Trading will recommend a sell during this rebalance.

Securities Settings

Setting More Information

Restrictions

The rebalance adheres to security-specific restrictions like Hold Do Not Trade.

Custom Settings

The rebalance adheres to security-specific custom settings like Custom round lot or Custom trade price.