Tax-Loss Harvesting at the $3M Portfolio Level: The Reset That Matters
Every S&P 500 sector has performed differently this year, while a relatively small group of large, AI-linked companies has had an outsized influence on index performance. That combination can make a portfolio look broadly diversified while a meaningful share of its return—and risk—comes from a single stock, sector, or practice-adjacent holding.
If a meaningful portion of your $3 million-plus portfolio sits in one company, one sector, or a holding connected to your professional life, the key planning question is not simply whether to sell. It is how to reduce concentration thoughtfully while considering investment risk, taxes, liquidity, and the timing of the decision.
How Concentration Develops
Few investors intentionally decide to place 30% of a portfolio in one stock. More often, concentration develops gradually: employer or practice-adjacent equity accumulates over time, a device company or surgical-center interest appreciates, or a long-held stock outperforms the rest of the portfolio.
Your medical practice may already represent a significant economic exposure to a particular industry, location, employer, or patient base. Holding substantial investments in a related company or sector can add to that exposure rather than diversify it. A concentrated position can create significant risk if the company, industry, or broader market experiences a downturn.
Why Taxes Matter
For 2026, the 20% federal long-term capital-gain rate generally applies to the portion of taxable income above $545,500 for single filers and $613,700 for married couples filing jointly. A taxpayer’s actual federal capital-gain rate depends on filing status, taxable income, the character of gains and losses, and other facts.
In addition, the Net Investment Income Tax may apply. NIIT is a 3.8% federal tax on the lesser of net investment income or the amount by which modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly. Those thresholds are not indexed for inflation.
For taxpayers whose taxable income and modified adjusted gross income are sufficiently high, the marginal federal tax rate on additional long-term capital gains may be 23.8%: the 20% long-term capital-gain rate plus the 3.8% NIIT. That does not mean every dollar of gain is taxed at 23.8%, and state and local taxes may materially increase the total tax cost.
This discussion addresses federal income tax only. New York State income tax—and, where applicable, New York City income tax—may increase the tax cost of realizing gains.
Pairing a Sale With Losses
Tax-loss harvesting may help reduce the current federal tax cost of reducing a concentrated position. Capital losses generally offset capital gains through the annual capital-gain and capital-loss netting rules.
If net capital losses exceed capital gains for the year, up to $3,000 of the remaining net loss may generally offset ordinary income, or $1,500 for married taxpayers filing separately. Unused capital losses may generally be carried forward to future tax years.
For a larger taxable portfolio, the planning opportunity may be to identify allowable losses elsewhere in the portfolio and realize them in the same tax year as gains from a concentrated-position sale. The losses may offset realized gains and reduce the current tax cost of the transaction.
That does not make a sale tax-free, and it does not eliminate the investment decision. The appropriate timing, amount, and method of reducing a concentrated holding depend on the investor’s tax situation, liquidity needs, risk tolerance, expected cash flows, investment objectives, restrictions on the holding, and estate-planning considerations.
Wash-Sale Considerations
Tax-loss harvesting requires careful coordination. A wash sale can disallow a currently deductible loss when substantially identical securities are acquired during the 30 days before or after the loss sale.
The rule may be triggered by purchases in taxable accounts, IRAs, Roth IRAs, a spouse’s accounts, or through certain options or contracts to acquire substantially identical securities. When a wash sale applies, the tax treatment depends on the facts and the replacement shares involved. In many taxable-account situations, the disallowed loss is generally added to the basis of the replacement shares. IRA-related transactions can create less favorable results.
Investors should coordinate activity across all relevant accounts before harvesting losses. This is especially important for households using automatic dividend reinvestment, employer-plan purchases, recurring investment programs, options, or multiple custodians.
Direct indexing may create additional opportunities to realize losses across individual securities while maintaining broadly diversified equity exposure. However, direct indexing can involve management fees, transaction costs, tracking error, implementation complexity, tax-management constraints, and wash-sale considerations. It is not appropriate for every investor.
Illustration
Consider an investor with a $3 million taxable portfolio, including $900,000 in a single stock that has appreciated substantially over several years. The investor chooses to sell one-third of the holding as part of a broader plan to reduce concentration.
Assume the portfolio also contains $150,000 of allowable unrealized capital losses in other positions. If those losses are realized in the same tax year and offset capital gains that otherwise would have been taxed at a 23.8% marginal federal rate, the estimated federal tax reduction attributable to the loss offset would be:
$150,000×23.8%=$35,700
This illustration does not represent a guaranteed result. Actual tax savings may differ based on the investor’s filing status, taxable income, modified adjusted gross income, capital-gain and loss character, holding periods, other realized gains and losses, NIIT calculation, wash-sale rules, deductions, and state or local taxes.
The Larger Planning Decision
A concentrated position can be difficult to address because selling may create a substantial tax bill, while continuing to hold it may expose the portfolio to a level of single-company or single-sector risk that no longer fits the investor’s objectives.
Tax-loss harvesting may be one tool for managing that tradeoff. It can potentially reduce the current tax cost of realizing gains when losses are available and transactions are coordinated properly. It does not eliminate taxes, guarantee investment results, or make a concentrated-position sale appropriate in every situation.
Reducing concentration may lower single-security risk, but it can also result in forgone future appreciation, transaction costs, realized tax liability, and differences between the prior holding and the replacement portfolio. Employer equity, private-company shares, surgical-center interests, and practice-related holdings may also involve transfer restrictions, valuation uncertainty, liquidity constraints, securities-law restrictions, or contractual limitations.
The goal is not to react to a headline or a market decline. It is to make a deliberate decision about whether the portfolio reflects the level of risk, diversification, liquidity, and tax exposure you intend to carry.
Capably Yours,
Jared
DISCLAIMER
This article is for informational and educational purposes only and does not constitute investment, tax, or legal advice. It does not take into account the specific objectives, financial situation, or needs of any particular person. You should consult your own tax, legal, and investment professionals before acting on any information contained herein. Capable Wealth, a New York registered investment adviser, provides advisory services only where properly licensed or exempt from licensing.