A harvesting account is at its best on the day it opens. Every lot sits at cost, so the first dip in any stock produces a loss to sell. Five years later the same account holds lots that have mostly gone up, and there is nothing under water to harvest until a real drawdown.
Live accounts show the same curve. In one large robo-adviser’s 2025 results, accounts opened that year harvested losses equal to 7.9% of their value; accounts from 2013 harvested 0.4%, in the same market.
Why it fades
Harvesting is a property of lots near their cost. Once a lot has appreciated, a normal wobble does not push it below cost, so there is no loss to take. And every harvest makes the next one harder: the replacement lot starts at a lower basis, so it needs a bigger fall to show a loss, and its eventual gain is larger.
Selling everything at the end gives most of it back. In a Morningstar study the full-period benefit of 1.04% a year fell to 14 basis points once the low-basis portfolio was liquidated with no gains elsewhere to offset.
| Piece of the benefit | What it is | Size in the published work |
|---|---|---|
| Time value of deferral | An interest-free loan of the tax | 13 to 42 bps a year |
| Rate arbitrage | Harvest at 52%, pay 35% later | The only piece that reaches 1 to 2%; runs in reverse if the bracket rises |
| Permanent forgiveness | Step-up at death, charity, or a move to a no-tax state | The only durable piece; about 44 bps a year if the step-up comes within ten years |
| Liquidation cost | Selling the low-basis portfolio at the end | Claws back most of the rest |
What keeps it alive
Three things, and all three are properties of the investor, not the account.
- New cash. Contributions of 1% of the account each month lift the long-run benefit from about zero to about 30 basis points for an investor with only long-term gains elsewhere, and to about 80 for one with short-term gains.
- Recurring short-term gains. Trading income, hedge-fund distributions, option premium. Each harvested loss then avoids 52% instead of deferring 35%, and the long-run level holds around 20 basis points even without contributions.
- An exit through gift or estate. The deferred gain is never paid. Without this, the “loan” comes due at the final sale.
A salaried investor with a lump sum, no side gains, and no plan to give the shares away has none of the three. The account still earns a few good years, then coasts at the fee.
The question to ask a provider
Which year of the account does your number come from? A benefit quoted as “1 to 2% per year” is a year-one number, or one that assumes steady new cash. Ask for year six.