As the end of 2026 approaches, look beyond investment performance and consider how taxes may affect your overall returns. Although tax considerations generally shouldn’t drive investment decisions, a year-end portfolio review may identify opportunities to reduce your taxes. Here are four to consider.
1. Harvest losses (or gains)
Review the capital gains and losses you’ve realized so far this year. If you have a net capital gain, you may be able to offset some or all of it through tax-loss harvesting before year end. This means selling some investments that have declined in value compared to what you paid for them.
If you expect to end the year with a net capital loss, consider selling some appreciated investments. The resulting gains can be offset by your already-recognized capital losses, essentially making the sale tax-free. But don’t eliminate your entire net capital loss. Each year you generally can use up to $3,000 of net capital losses ($1,500 if married filing separately) to offset ordinary income (such as wages, business income and taxable retirement plan distributions). Any remaining losses can be carried forward indefinitely.
2. Avoid the wash sale rule
If you sell an investment at a loss for tax purposes, be mindful of the wash sale rule. Under this rule, if you sell a security at a loss and purchase the same or a substantially identical security within the 30-day period before or after the sale, the loss generally isn’t deductible in the current year. Instead, the disallowed loss is added to the basis of the replacement security, postponing the tax benefit until the replacement security is sold.
To avoid this result, consider waiting at least 31 days before repurchasing the investment or replacing it with a similar — but not substantially identical — security. Purchases by a spouse or certain related entities can also trigger the wash sale rule.
The wash sale rule applies only to losses, never to gains, so harvesting gains carries no 31-day wait.
Rev. Rul. 2008-5 holds that when you buy the replacement security in your own IRA or Roth IRA, the loss is disallowed without any basis increase in the IRA, making the loss permanently unavailable.
The ruling does not decide the spouse-IRA fact pattern. A coordinated spouse taxable-account purchase can disallow the loss under Publication 550 and McWilliams v. Commissioner, but the permanent-loss result for a spouse’s IRA should be described as uncertain and high risk, not as a holding of Rev. Rul. 2008-5.
3. Time the sale of appreciated investments
Before selling investments that have increased in value, consider whether you should wait until next year. If you expect your taxable income to be lower in 2027 — perhaps you’re retiring or anticipating lower business income — delaying the sale could reduce the tax rate you pay on it.
However, if you expect to be in a higher tax bracket next year, selling in 2026 may be advantageous. Consider your expected income, cash needs, and tax situation.
4. Donate appreciated securities
If you’re planning charitable gifts, consider donating long-term appreciated securities instead of cash. Donating them will allow you to avoid the capital gains tax you’d have to pay on the appreciation if you sold the securities. Plus, if you itemize, you generally can claim a charitable deduction for the fair market value of long-term appreciated securities, subject to the 30%-of-AGI limit for gifts of appreciated property to public charities.
2026 UPDATE — Beginning January 1, 2026, the law imposes a 0.5%-of-AGI floor on itemized charitable deductions. Section 68 instead reduces affected itemized deductions by 2/37 of the lesser of total itemized deductions or taxable income above the 37% bracket threshold. Thus, 35% is a useful marginal-rate shorthand only for the affected deduction amount, not a blanket cap on every itemized deduction.
Don’t donate stock that’s worth less than what you paid for it. Instead, sell the stock to deduct the loss, then donate the cash proceeds to charity.
New 2026 rules:
- Itemizers now lose the first 0.5% of AGI of charitable giving. On $400,000 of AGI, the first $2,000 of gifts produces no deduction. Amounts denied solely by the floor carry forward only from a year in which an applicable percentage limitation already creates a charitable-contribution carryover.
- Section 68 reduces affected itemized deductions by 2/37 of the lesser statutory base; the 35% description is only shorthand for the marginal benefit of the affected deduction amount that otherwise would offset 37%-bracket income.
- Bunching two or three years of giving into one year, or funding a donor-advised fund, is now the standard workaround – this is a strong consultation hook.
- Non-itemizers get a new above-the-line deduction of up to $1,000 ($2,000 MFJ) for CASH gifts only, so appreciated stock does not qualify for it.
- For clients 70-1/2 or older, a qualified charitable distribution from an IRA sidesteps both the floor and the cap entirely.
5. Review New QSBS Tax-Saving Opportunities
Review your exposure to the 3.8% net investment income tax (MAGI over $200,000 for single filers / $250,000 for joint filers, with thresholds still not indexed). If you hold C corporation stock, also check whether it qualifies as qualified small business stock (QSBS).
OBBBA introduced significant new QSBS planning opportunities. For qualifying QSBS acquired after July 4, 2025, the Section 1202 per-issuer exclusion increased to $15 million, with a tiered 50%/75%/100% exclusion after 3, 4, and 5 years, respectively. A separate $75 million gross-assets ceiling applies to stock issued after July 4, 2025. The acquisition date is determined under Section 1223 holding-period rules.
The existing requirements still apply, including original issuance or a permitted transfer, eligible shareholders, a domestic C corporation, and an active business.
Moving Forward
Before making significant investment moves, contact our office to coordinate your investment decisions with your overall tax strategy.