Rising Bond Yields Open Up Tax-Loss Harvesting Opportunities, Advisors Say

A recent selloff in the bond market has pushed yields higher and left many investors sitting on paper losses, a situation that financial advisors say could present a valuable tax-planning opportunity heading into year-end. Rather than waiting until December, advisors are encouraging clients to consider tax-loss harvesting now while the opportunity is fresh.

Tax-loss harvesting involves selling investments that have declined in value to realize a loss that can be used to offset capital gains elsewhere in a portfolio, potentially reducing an investor's overall tax bill. With bond prices falling as yields have climbed, fixed-income holdings have become a notable source of such losses this year.

Advisors quoted on the strategy note that investors who have also seen substantial gains from a strong run in equities may find bond losses particularly useful for balancing out their tax liability. The approach is a routine part of year-end financial planning, but the scale of the current bond market decline has made the opportunity more pronounced than in typical years.

Financial professionals caution that any tax-loss harvesting strategy should account for rules such as the wash-sale provision, which can disqualify a loss if a substantially identical security is repurchased too quickly. Investors are generally advised to consult a tax or financial professional before executing such trades.