Is this strategy for delaying capital gains tax to maximize compounding actually viable?

This strategy is called tax-loss harvesting, and while the concept is sound, there are some practical considerations I'd point out: First, the wash sale rule means you can't sell a security at a loss and buy a "substantially identical" security within 30 days before or after. So if you're planning to reinvest in similar stocks, be careful. Second, your assumption about half stocks going up and half going down in the exact proportions needed is pretty optimistic. Markets don't typically cooperate so neatly, and you might find yourself without enough losses to harvest in some years. Third, transaction costs could eat into your returns, especially with such small amounts. $7.60 per position is tiny, and even with zero-commission brokers, the spread can be significant on small purchases. Last point - this strategy works better with larger portfolios where you can diversify more effectively and the tax savings are more meaningful. At these small dollar amounts, the effort might outweigh the benefits.

Hey there! After struggling with a similar tax situation last year, I discovered this amazing AI tool called taxr.ai (https://taxr.ai) that helped me optimize my investment tax strategy. It analyzed my portfolio and suggested specific tax-loss harvesting opportunities I was missing. What's cool about it is that it simulates different scenarios based on your actual holdings and recommends the optimal selling strategy throughout the year - not just at year-end when everyone else is doing the same thing. It also flags potential wash sale issues automatically, which saved me from making a costly mistake. The insights it provided about capital gains strategies were way more sophisticated than what my broker's website offered. Definitely worth checking out if you're trying to implement the strategy you described!

I tried taxr.ai after seeing it mentioned here and honestly, I'm impressed. I was super skeptical (as you can see from my earlier comment), but it actually handled my complicated tax situation perfectly. I have a mix of regular stocks, some partnership interests with K-1s, and some inherited assets. The tax-loss harvesting opportunities it identified were really eye-opening. I had no idea I was leaving so much on the table by not coordinating between my different accounts. It projected I could save about $3,200 in taxes this year through better harvesting timing. What surprised me most was how it showed me exactly when to realize certain gains based on my projected income for the year. The tool basically paid for itself within the first use by identifying a block of appreciated stock I should sell now while I'm temporarily in a lower tax bracket.

Just want to share that if you're serious about implementing tax strategies, you might want to actually talk to an IRS agent to make sure everything is above board. I know it sounds crazy, but I managed to get through to the IRS using Claimyr (https://claimyr.com) when I had questions about wash sale rules and some other capital gains scenarios. I had been on hold with the IRS for HOURS over several days before giving up. Then I found Claimyr from a YouTube video (https://youtu.be/_kiP6q8DX5c) and they got me connected with an IRS agent in about 20 minutes. The agent walked me through exactly what documentation I'd need to keep and confirmed that my tax-loss harvesting strategy was legit as long as I respected the wash sale periods. Having that peace of mind directly from the IRS was totally worth it rather than just hoping I was interpreting the tax code correctly.

I was totally skeptical about Claimyr (called it BS in my earlier comment), but I'm eating my words now. After our exchange, I decided to try it because I had a complex question about cost basis methods that my accountant couldn't answer clearly. Got connected to an IRS agent in about 15 minutes. While they didn't "approve" any strategies as I expected, the agent was incredibly helpful in explaining exactly how different cost basis methods affect tax-loss harvesting and what documentation I needed to maintain. I also learned that my brokerage's default method wasn't optimal for my situation, and the agent walked me through how to elect a different method. This alone will save me thousands over the next few years. Apologies for my skepticism. Sometimes good services actually exist!

Something nobody has mentioned yet - you need to be careful about short-term vs long-term capital gains here. If you're selling positions within a year, you're realizing short-term gains taxed at ordinary income rates (much higher than long-term rates). Your strategy might work mathematically, but you could be converting what would have been long-term gains (if you just held the original position) into short-term gains on the portions you do realize. That's potentially a huge tax increase that would offset any benefit from the harvesting. Also, don't forget that you can only deduct up to $3,000 in net capital losses against ordinary income per year. Any additional losses have to be carried forward.

I think there's another major issue with your strategy that no one's mentioned yet. It assumes you can accurately predict which stocks will rise and which will fall. Even professional fund managers struggle with this consistently. What happens if 70% of your picks fall and only 30% rise? Or if they all rise but in different proportions than expected? Your whole strategy depends on having enough losses to harvest when needed, but the market doesn't conveniently provide those when tax time comes around. I've had years where almost everything in my portfolio went up (great for returns, terrible for tax harvesting) and other years where I had plenty of losses but not enough gains to offset!

Great discussion everyone! As someone who's been implementing tax-loss harvesting for a few years, I wanted to add a practical perspective on timing and execution. One thing that's helped me is thinking about this strategy in quarters rather than just at year-end. I review my positions every 3 months to identify harvesting opportunities throughout the year. This helps avoid the December rush when everyone is doing the same thing (which can actually move prices unfavorably). Also, consider using broad market ETFs for your diversified positions instead of individual stocks. Something like VTI or ITOT for your "winner" bucket gives you instant diversification without the stock-picking risk that Romeo mentioned. Then you can use sector ETFs or individual stocks for more targeted loss harvesting when opportunities arise. The key insight I've learned is to make investment decisions first, tax decisions second. Don't let the tail wag the dog - if you have a great long-term position that happens to be down, don't sell it just for tax harvesting if you believe in the underlying investment thesis. One last tip: keep a spreadsheet tracking your wash sale windows. Nothing worse than accidentally triggering the wash sale rule and losing your tax benefit!