Abstract
By not realizing capital gains, equity investors can postpone or even fully avoid future tax payments to the government. The value of the tax deferral increases at an increasing rate as the holding period lengthens. For investors who actively trade, however, tax-loss harvesting can be used. Investors then maximize losses that can offset gains in other securities. For tax-loss harvesting to work, however, the present value of uncertain tax savings must more than offset higher transaction costs.
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