Duration: 7:16
Level: Beginner

IBKR’s Tax Loss Harvest is a powerful tool that allows financial advisors to potentially reduce their clients’ tax liability. Powerful automation lets Advisors easily harvest losses in an asset across multiple client accounts at the same time.

Study Notes:

The information provided here is not intended to serve as tax advice and should not be used by the recipient or any other taxpayer to avoid penalties under any federal, state, local, or other tax statutes or regulations. It is also important to acknowledge that this information cannot be relied upon to resolve any tax issues.

Financial advisors can use IBKR’s Tax Loss Harvesting Tool to help clients realize the tax benefits of harvesting capital losses. Advisors can preview the potential losses on stocks and ETFs and pre-allocate shares across multiple accounts to fully or partially close out positions and harvest the capital losses. Tax loss harvesting can be a useful part of an overall financial plan and help lower your clients’ overall tax burden, especially if they are in a higher tax bracket. 

Accessing the IBKR’s Tax Loss Harvesting Tool  

An advisor can access the IBKR Tax Loss Harvesting Tool by going to the Advisor Setup area by clicking on the tab in the upper left-hand side. Once the Advisor Setup tool is open click on the Tax Loss Harvesting tab, which is the furthest to the right. Read the disclaimer and when satisfied they click “Accept” to bring up the IBKR Tax Loss Harvesting Tool. 

The IBKR Tax Loss Harvesting Tool is also accessible on the TWS Mosaic Portfolio Tab. Right-click on any stock position line and scroll down to Tax Loss Harvest.

Sections of the IBKR Tax Harvesting Tool

There are three sections of the IBKR Tax Harvesting Tool.

  • Identify losing opportunities.
  • Tax Loss Information Summary
  • Find Replacement

Identifying losing opportunities in the IBKR Tax Loss Harvesting Tool

At the top of the Tax Loss Harvesting Tool is the “Identify losing opportunities section. In this section the Advisor can enter in criteria to either sell an entire position which is showing a loss by clicking on “Entire position” or just the specific lots of that position that are showing a loss by clicking “Lot”. Next the advisor chooses to search for short term losses, long term losses, or Any Losses by clicking the appropriate selection.

The advisor can also define the minimum loss as either an amount or percentage, as well as choose to include nontaxable accounts in the search.

How to view a summary of projected losses and tax loss harvesting opportunities in the IBKR Tax Loss Harvesting Tool

In the “Tax Loss Information Summary” section the advisor can view a summary of projected losses and tax harvesting opportunities by either long or short positions. The Summary area allows the advisor to see the overall projected losses across all the accounts they manage as well as a summary of the number of client accounts and unique securities where the losses are distributed across.

In the table below each account is listed with the number of securities showing a loss, the projected loss allowed, the projected loss disallowed, the cost, and the projected loss percentage.

How to filter the selection of tax loss harvesting opportunities in the IBKR Tax Loss Harvesting Tool

Advisors can narrow their selection of tax loss harvesting opportunities using the filters in the “Find Replacement” section. They can filter by:

  • Account – which allows the advisor to filter by individual accounts or Groups
  • Portfolio – although please note that IBKR does not track tax lots by portfolio segment. The projected P&L calculation uses all tax lots available in the account. While the positions sold within the specified portfolio segment may be sourced from various tax lots available in the account, the desired target position for the selected portfolio segment will be achieved.
  • Individual security

The advisor can also select the percentage of the position they want to close and for long positions select the replacement method choosing from:

  • Cash
  • ETF – which the advisor can select from a list after clicking the blue ETF button next to the row, or
  • Scanner – which the advisor can select a security in the same sector, industry, and category as the position they are closing.

How to create and submit tax loss harvesting orders in the IBKR Tax Loss Harvesting Tool

Once the Advisor has made the tax loss harvesting selections they can click on the “Create TLH Orders” button in the bottom right-hand side of the window. This will bring up the IBKR BasketTrader populated with the tax loss harvesting orders. The advisor can adjust the time-in-force, order type, and price when applicable. If the mouse is hovered above the “custom” in the allocation column to see the portion of the order allocated to each account. All accounts involved with the order will receive the same average price.

When ready the advisor can submit each order individually by clicking on the “T” in the transmit column or submit the entire basket of trades by clicking on the “Transmit” button in the execute basket area. For more information on the IBKR TWS BasketTrader please see the two BasketTrader lessons in the Traders’ Academy TWS Advanced Trading Tools course.

How to create reports to verify tax allocation

The Advisor Portal allows you to create custom statements to verify the lot allocation.  Once the custom report has been created and saved it can be run on the next business day after trades are made to confirm the lot allocation. To create a custom activity statement log in your Advisor Portal, click the Menu icon in the upper left-hand corner and expand the Reporting area by clicking on the plus sign.  Next the Advisor clicks “Statements” and clicks the plus sign next to “Custom Statements” and names the report. Let’s call this one Tax Lots. Select Activity for Statement Type, and in the sections area, click Trades. In the Section Configurations area next to Profit and Loss, select MTM and Realized P/L in the drop-down box.

Ensure that the toggle next to “Hide Details for Positions, Trades, and Client Fees” section is set to NO. Next, set the delivery configuration including the period and when ready click Continue, and the advisor will be able to review their settings. Once reviewed click the Blue Create button in the bottom right-hand corner. A message will confirm the Custom Statement has been Saved. Click ok. Now the advisor can run the report anytime for any or all their accounts.

The output will show the list of trades. The advisor can click the plus sign next to a trade to expand and they will see the Closed Lot details. Losses will be shown in red, and gains will be shown in green. On the far-right column under Code it will show either ST for Short-Term or LT for Long-Term.

IBKR’s Tax Loss Harvesting Tool is an extremely useful tool for Advisors who want to utilize tax harvesting for their clients. With this tool the Advisor can easily preview stock capital losses and pre-allocate a trade to multiple clients at once.

Resources:

Tax Loss Harvesting


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Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.

Disclosure: Tax-Related Items (Circular 230 Notice)

The information in this material is provided for informational purposes only and does not constitute tax advice and cannot be used by the recipient or any other taxpayer to avoid penalties under any federal, state, local or other tax statutes or regulations, or to resolve any tax issue.

Disclosure: Order Types / TWS

The order types available through Interactive Brokers LLC’s Trader Workstation are designed to help you limit your loss and/or lock in a profit. Market conditions and other factors may affect execution. In general, orders guarantee a fill or guarantee a price, but not both. In extreme market conditions, an order may either be executed at a different price than anticipated or may not be filled in the marketplace.

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Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.