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Abstract: 

Consider the following scenario. An investor purchased a sector fund on January 2, 2004 for $100 per share. By March 31 of the same year, the fund was trading at $80 per share. Under what circumstances should the investor have sold the fund and harvested the loss, rather than waiting until late December 2004 to see if the shares had recovered? The three principal purposes of this paper are to identify the issues to consider when deciding whether to engage in early tax loss harvesting, lend insight into the circumstances in which tax loss harvesting prior to year-end might be superior, and illustrate a method that investors can apply to make rational tax loss harvesting decisions in their specific situations.

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Affiliations:  1: University of Miami; 2: University of Kansas School of Business; 3: University of Miami; 4: University of Miami.