Now may be the time to begin looking seriously at tax-loss harvesting for many investors. 2025 has presented plenty of upheaval for portfolios. But despite all that uncertainty, many advisors and investors are facing capital gains taxes of note. Tax-loss harvesting can help reduce those tax bills while also providing an opportunity to invest in new categories. One particular ETF could help double down on reducing tax impacts for portfolios, presenting an appealing opportunity.
See more: Get an Active Spin on Current Income in Income ETF MUSI
What does tax-loss harvesting entail? For those new to the practice, it’s relatively straightforward. Nearly every investor and advisor has an investment that is on track for a loss this year. Not all investments hit, after all. Selling at a loss helps tamp down a portfolio’s overall gains for the record books, reducing the end-of-year tax bill, “harvesting” losses to offset gains.
Of course, investors then have proceeds from those sales that can be used elsewhere. Reinvesting tax-loss-harvested assets is a common strategy. But it comes with a caveat. Investors must follow the so-called wash sale rule, which requires those assets not be reinvested into “substantially similar” investments.
That reinvestment could be a powerful tool to reset or refresh portfolios. For those already looking at tax-loss harvesting, it may be worth considering an ETF that also offers tax reduction. The American Century Diversified Municipal Bond ETF (TAXF )), for example, can offer exposure to municipal bonds exempt from Federal taxes.
Specifically, TAXF charges a 27 basis point fee for its approach. The fund actively invests in both investment-grade and high yield municipal bonds. In doing so, the fund can also potentially invest in muni bonds also exempt from state taxes. Together, that has helped the fund return 3.9% YTD, per ETF Database. That has outperformed its ETF Database Category average in that time, as well. What’s more, the fund has offered a 3.6% 12-month distribution rate, per American Century Investments data.
Looking ahead to the end of the year, tax-loss harvesting offers a powerful tool for many investors and advisors. For those looking to get the most out of tax bill reductions, an ETF like TAXF could intrigue as a landing spot for those tax-loss harvesting proceeds.
For more news, information, and analysis, visit the Core Strategies Content Hub.
