Capital gains & tax-loss harvesting

Tax Evaluator: tax-loss harvest & monitor capital gains estimates

BlackRock's Tax Evaluator helps identify tax-loss harvesting opportunities and estimated capital gain distributions in your clients' portfolios, so you can help them keep more of what they earn.
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How Tax Evaluator could help your clients

Use Tax Evaluator to identify tax-loss harvesting opportunities and monitor capital gains estimates for funds in your clients' portfolios.
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Identify tax-loss harvesting ideas using price return information.
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Monitor the date and size of estimated capital gain distributions for funds in your clients' portfolios.
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Find tax-efficient ETFs with a similar objective or Morningstar category to help maintain asset allocation while potentially avoiding capital gains.

Three ways to help improve tax efficiency with Tax Evaluator

For taxable investors who incur gains, optimizing for after-tax returns across the entire portfolio can make a big impact. Tax management can be just as important as risk and fee management.

Tax-loss harvest
Identify tax-loss harvesting opportunities

In a down market, there could be an opportunity to tax-loss harvest across both stocks and bonds. BlackRock's Tax Evaluator identifies the funds in your clients' portfolios where you may be able to tax-loss harvest.

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Monitor and avoid capital gains
Help minimize tax impacts for your clients

BlackRock’s Tax Evaluator aggregates the date and size of pending mid-year capital gains distributions from +3,500 mutual funds and ETFs, saving you time and potentially reducing your clients' tax bills.

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Explore tax-efficient ETFs
Consider ETFs to replace mutual funds

Consider low-cost, tax-efficient ETFs as replacements for active mutual funds that are underperforming, expensive, and/or distributing capital gains. The BlackRock Tax Evaluator provides tax-efficient ETF ideas across equities and fixed income so you can maintain your clients’ asset allocations.

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Investors want to build wealth over time, but if you aren’t careful, taxes can eat away at that wealth. 
One way to reduce your tax burden may be to use a tax-loss harvesting strategy.

With this strategy, you look to sell investments at a loss and use the proceeds to buy investments with similar exposures. 

Let’s take a look at a hypothetical example to see how it works. 

Generally, if you sell a taxable investment for more than you paid for it, you have a realized gain.
Similarly, when you sell an investment for less than you paid for it, you have a realized loss.

With tax-loss harvesting, you realize losses, and reinvest the proceeds into your portfolio. 
When realized losses offset realized gains, this means less taxes paid and more money to invest and potentially grow.
Any losses that were not used this year can be carried forward into future years. 

Some things to consider with tax-loss harvesting:

First, if you harvested losses but don’t have enough gains to fully offset, you can still lower your year-end tax bill with a reduction of up to $3,000 of ordinary income per year.

Second, the Internal Revenue Services, or IRS, has stipulations around netting gains and losses. 
Finally, the IRS 30-day wash-sale rule generally prevents you from recognizing a tax loss if you repurchase the same or a substantially identical security during the 30-day wash sale window.

And as always, tax-loss harvesting may not be for everyone. 

Help your clients stay invested while potentially saving money on taxes.

Use BlackRock's Tax Evaluator to help identify tax loss harvesting opportunities. 

INVESTING INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL. 

The Internal Revenue Service has not released a definitive opinion regarding the definition of “substantially identical” securities and its application to the wash sale rule and ETFs. The information and examples provided are not intended to be a complete analysis of every material fact respecting tax strategy and are presented for educational and illustrative purposes only. Tax consequences will vary by individual taxpayer and individuals must carefully evaluate their tax position before engaging in any tax strategy. 

This material is provided for educational purposes only and is not intended to constitute investment advice or an investment recommendation within the meaning of federal, state or local law. You are solely responsible for evaluating and acting upon the education and information contained in this material. BlackRock will not be liable for direct or incidental loss resulting from applying any of the information obtained from these materials or from any other source mentioned. The information contained herein is based on current tax laws, which may change in the future. BlackRock does not render any legal, tax or accounting advice and the education and information contained in this material should not be construed as such. Please consult with a qualified professional for these types of advice.

Due to the complexity of tax law, not every single taxpayer will face the situations described herein exactly as calculated or stated; i.e., the examples and calculations are intended to be representative of some but not all taxpayers. Since each investor’s situation may be different in terms of income tax, estate tax, and asset allocation, there may be situations in which the recommendations would not apply. Please discuss any individual situation with tax and investment advisors first before proceeding. Taxpayers paying lower tax rates than those assumed or without taxable income would earn smaller tax benefits from tax-advantaged indexing or even none at all compared to those described.

No proprietary technology or asset allocation model is a guarantee against loss of principal. There can be no assurance that an investment strategy based on the tools will be successful. 

Prepared by BlackRock Investments, LLC, member FINRA. BlackRock Fund Advisors, an affiliate of BlackRock Investments, LLC, is a registered investment adviser.

©2022 BlackRock, Inc. All rights reserved. BLACKROCK is a trademark of BlackRock, Inc., or its subsidiaries in the United States or elsewhere. All other marks are the property of their respective owners

Taxes are impacting your portfolios

Everyone focuses on expense ratios, but do you focus enough on tax cost? The long-term annual average tax cost for U.S. Large Cap mutual funds is 2.12%.¹ Assuming an initial investment of $1,000,000 at a 11% return rate over 10 years, that creates a $498K negative tax impact.

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  • Tax-loss harvesting is a strategy of realizing investment losses in an attempt to minimize current tax liabilities. When markets are down, there is a greater chance of finding tax-loss harvesting opportunities in portfolios – which can help reduce clients’ tax bills.

  • Harvested losses can be used, dollar for dollar, to offset realized capital gains. In addition, you can offset up to $3,000 per year of regular income with realized losses. If more losses than gains are realized or have already offset the $3,000 income cap, losses can be carried forward indefinitely.

  • Price returns can be used to help identify funds that could be tax-loss harvest opportunities. Price returns show the total return on a fund less any prior capital gains or income distributions. Prior distributions are typically taxed when distributed, so the price return indicates the current potential tax liability for the fund. Funds with negative price returns are potential opportunities for tax-loss harvesting. When you upload a portfolio to BlackRock’s Tax Evaluator, the tool will highlight funds with negative price returns – helping you identify where there are potential losses.

  • Yes. Just like other investments, bonds can be tax-loss harvested. 2022 ranks as the worst year ever for bonds dating all the way back to 1926, presenting an opportunity for tax-loss harvesting.* Since bond funds tend to distribute the bulk of their return in income distributions, their price return is usually well below their total return.

See how BlackRock’s Tax Evaluator works

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Visit the tax resource center for more on tax smart investing

Visit our Tax Center to explore portfolio construction ideas and insights to help you design portfolios with tax impact in mind.

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