Why Tax-Loss Harvesting Is More Than Just Cap Gains

It’s that time of year once more, when investors take stock of the year’s overall gains and losses. 2025 has produced some big swings in areas like tech, but also notable volatility. Indeed, portfolios may have healthy gains in some areas and some disappointments in others. Tax-loss harvesting can help mitigate losses to produce a kinder tax bill come next April. Of course, tax-loss harvesting is more than a cap gains matter — it’s an opportunity.

See more: Looking at Value Investing? Why Active Value ETFs Give You More

Tax-loss harvesting involves selling certain investments at a loss to reduce the net capital gains tax bill a portfolio faces in the new year. So long as investors avoid crossing the so-called wash sale rule that forbids investing those tax-loss-harvested assets into the same or substantially similar investments, investors can largely tax-loss -harvest almost any investment they have.

That presents a major opportunity to invest those assets into an exciting area. Tax-loss harvesting offers investors a chance to refresh their portfolios into potentially more appealing funds or strategies. Active ETFs, for example, can play almost any role in a portfolio, frequently outdoing passive fund alternatives.

In bonds, for example, active ETFs can do more than passive funds or ETFs. On a basic level, active investing can help bond ETFs actually meet their goals compared to passive bond funds. Passive bond funds trying to track their indexes may struggle when bonds default or are called early, as they can’t replace them as quickly. In particularly difficult cases, those funds may struggle to produce the same bond weights as their tracked indexes.

Increasingly, active ETFs present a strong alternative to passive even for core equities allocations, as well. Many active ETFs offer competitive fees that can get very close to their passive counterparts. With their focus on fundamentals, as well, they could identify stronger large-caps to fill that core role, with their investment often showing strong cash flows and other fundamentals-driven metrics. 

As such, should some core allocations have disappointed, one may tax-loss-harvest a disappointing core allocation and use the opportunity to lean more into active. Whether core or another part of a portfolio, the tax-loss-harvesting moment presents a window to make big portfolio shits. 

An ETF like the T. Rowe Price Capital Appreciation Equity ETF (TCAF) offers an intriguing example. It charges a 31 basis point fee for its approach. Managed by David Giroux, it leans on fundamental research to identify high-quality large-cap stocks for investing.

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