Why the last big loophole is made of losses, and how it closes
This summer Bloomberg profiled the world's largest hedge fund complex and the product behind its growth: tax-loss harvesting at industrial scale. The mechanics are simple. Run a portfolio long and short at two or three times its capital. Sell the losers constantly; let the winners ride. The portfolio makes money — and the tax return shows a loss, which offsets income from anywhere else. The IRS bill shrinks while the wealth grows.
The Accord closed the gain side of the tax code completely. Every disposition of an investment asset now realizes gain — the swap-and-defer doors are deleted. Basis step-up at death is gone. The deferral wrappers end for new money. And that thoroughness creates the one opening left: when every gain must eventually be taken, a manufactured loss becomes the most valuable product in finance. Close the gain side without the loss side, and the harvesting machines simply absorb what the closures collect.
So the loss side closes too, with two rules.
First: no loss deduction from an account that made money. Deductible losses from a managed account are capped at the account's true economic result for the year — what it realized plus what its holdings gained or lost in value. A portfolio that went up produces no net loss for the tax return, no matter how artfully its losers were sold. The excess isn't confiscated; it waits, offsetting that account's future gains, and survives to the estate. This is not mark-to-market: rising value is never taxed as income here — it only caps deductions. Both numbers already sit on the standard year-end brokerage form.
Second: the wash-sale rule joins this century. The current rule blocks re-buying a "substantially identical" stock within thirty days — written for a world where you'd re-buy the same ticker. A modern optimizer sells the loser and buys a statistical twin: a different name with the same behavior. The rule tightens to substantially similar, extends to short positions, and counts all accounts under common ownership as one.
Ordinary investors are outside both rules twice over. A per-taxpayer allowance leaves everyday harvesting in a down market untouched, and a portfolio that genuinely lost money deducts its real loss exactly as before. The nurse who sells a losing fund in a bad year sees no change. The rule finds the structure sold on "tax alpha," because that structure has a signature: losses flowing out of an account that is, in fact, winning.
One more piece of design worth naming. Every closure in the Accord now states, on its page, the loophole it closes and the interlocking piers that must travel with it — the other rules that keep it sealed. A legislator who wants to lift one closure into a separate bill can see exactly what else the seal requires. The loss-side rule lists its own: universal realization (the gain side it protects), the ownership registry (so splitting into trusts and shells changes nothing), and the modernized wash sale (so replacement trading can't leak around the cap).
With this closure, every leg of the oldest strategy in the book — buy, borrow, die, and harvest — is priced or closed. Gains when they are taken. Losses only when they are real.
The full mechanism, with who pays, who is protected, and the interlocking piers: [Loss-side integrity](/engines/revenue/loopholes/loss-side-integrity). The complete closure set: [Closing the Escape Routes](/closing-loopholes).