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Tax-Rate Arbitrage: Realization of Long-Term Gains to Enable Short-Term Loss Harvesting

SSRN, ISSN: 1556-5068
2021
  • 1
    Citations
  • 1,322
    Usage
  • 3
    Captures
  • 1
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    1
    • Citation Indexes
      1
  • Usage
    1,322
    • Abstract Views
      1,095
    • Downloads
      227
  • Captures
    3
    • Readers
      3
      • SSRN
        3
  • Mentions
    1
    • Blog Mentions
      1
      • Blog
        1
  • Ratings
    • Download Rank
      270,616

Article Description

We look at an enhanced loss-harvesting strategy, tax-rate arbitrage, which exploits the differential between short- and long-term tax rates. Our study relies on ATBAT, an After-Tax Back-Testing Analysis Tool that lets us examine tax-managed strategies over numerous historical periods. For the ideal tax-rate arbitrage investor, one who is subject to federal only tax rates, who has a long horizon and a planned liquidation date, and who launches the strategy from all cash, tax-rate arbitrage generated an average of 0.78% in excess after-tax active return at a 10-year horizon relative to a standard loss-harvesting strategy. Other investors with different profiles may benefit from tax-rate arbitrage but typically to a lesser extent.

Bibliographic Details

Lisa R. Goldberg; Taotao Cai; Pete Hand

Elsevier BV

Multidisciplinary; tax-rate arbitrage; loss harvesting; tax-managed strategies; tax-rate differential; gains realization; ossification

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