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Journal Article

The Tax Benefits of Direct Indexing: Not a One-Size-Fits-All Formula

May 7, 2021 - Nathan Sosner Stanley Krasner Michael Gromis

An investor holding a direct indexing portfolio can obtain tax benefits by harvesting losses on individual stock positions. We show that investors with allocations to hedge funds and derivatives are the most likely category of investors to have systematic short-term capital gains in their portfolios and, therefore, benefit the most from losses harvested by direct-indexing strategies. We show how tax benefits are affected by equalizing the tax rate applicable to long-term and short-term capital gains.