A. Based on this article, the answer is surprisingly that it maybe not!
During year end, one of traditional tax planning strategies is to consider tax-loss harvesting to minimize tax exposure, as losses that are harvested can be immediately and fully offset against other capital gains recognized in the same year.
The caveat, however, is that by harvesting a loss – selling at a lower-than-cost-basis price and buying back again after waiting out the wash sale period – also reduces the cost basis of the investment, effectively stepping the basis down to the re-purchased value, which increases capital gains exposure in the future by the same amount as the loss that was claimed today. Which means in practice, tax loss harvesting isn’t really a tax savings strategy, but merely a tax deferral strategy that reduces capital gains today in exchange for higher (offsetting) capital gains in the future.
Because the value of tax loss harvesting is really only based on the tax deferral – and the ability to grow those tax-deferred dollars until the future – the value of tax loss harvesting is also contingent on the future growth rates themselves, with low-return environments further reducing the value of tax loss harvesting (to as much as 0.57%/year over a 10-year period at 10% returns but only 0.10%/yr at 4% returns).
In addition, it’s notable that by deferring capital gains taxes to the future, there’s also a risk that tax rates will rise (especially given that capital gains are at all-time historical lows), which can actually turn tax loss harvesting from a positive to a negative.
And of course, that’s before considering the costs, including transaction costs (which even without trading commissions, may still include bid/ask spreads), and the risk of tracking error when buying a not-substantially-identical security (where the substitute investment during the wash sale period underperforms, or ends out generating a short-term capital gain that must be recognized at higher tax rates to switch back).
As a result, in the end it turns out that the value of tax loss harvesting is limited at best, and in many decades historically was actually a net negative (even with “just” a 0.1% transaction cost).