As Uncle Sam extends his long tax collecting arm, people are looking into tax-loss harvesting as another perk of investing in exchange traded funds (ETFs).

If you have an investment to cover U.S. large-cap stocks, assuming you have already lost a in the market turmoil, and would like to continue to cover this asset class but would also like to take the tax losses to offset future or current capital gains, then trading in ETFs would be a good way to exercise such an option, writes ETFInvestor for the CAPS Blog at Motley Fool.

By switching to a large-cap ETF that covers the same asset class, you may claim the losses from the U.S. large-cap stocks for the year without falling into the wash-sale rule. It is noted that the IRS has not formally ruled on this topic, so check with your tax advisor. Furthermore, one may increase allocations to this asset class by buying more shares of the ETF.

ETF tax-loss harvesting allows guaranteed financial return of capital gains savings without incurring risk of being out of that asset class.

An investor needs to have a deep discount brokerage and enough money invested in the ETF. The capital gains savings may also be wiped out, depending on your tax bracket.

ETF Investor cautions that this strategy can get complicated when trying to rebalance multiple asset classes.

But remember: we are not accountants, and your own individual situation should always be assessed by a qualified professional.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.