Mid-Year Tax Planning 2026: Finding Losses Near Market Highs

Even when a headline index is near a high, individual tax lots can remain below basis after intra-year volatility. That difference matters: taxes are calculated from the lots you sell, not from the year-to-date return of a benchmark.

A useful mid-year review therefore starts with the household's own records. Check lot-level basis, year-to-date realized gains and losses, expected income, and scheduled purchases that could create wash sales. The goal is not to predict the second half of 2026. It is to make decisions from the tax facts that already exist.

What Happened Inside Most Portfolios in the First Half of 2026

Portfolio-level performance can hide several different tax stories. A long-held position may be up overall while recent purchase or dividend-reinvestment lots remain below basis. Another holding may be down but unsuitable to sell because no acceptable replacement exists. A third may offer a useful loss but sit inside a wash-sale window created by an IRA purchase, RSU vest, or automatic reinvestment.

That is why lot-level review is more informative than scanning red and green positions. More frequent monitoring can also identify temporary losses that disappear before year-end. It does not guarantee more savings: the outcome depends on which losses are actually realized, whether they are usable, the replacement's tracking difference, transaction costs, and the future tax created by a lower basis.

The Mid-Year Decision Framework

Mid-year is the natural moment to make three categories of decisions that are difficult to make either in January (too early — the year hasn't developed) or December (too late — opportunities have closed). The framework below is a practical checklist.

Decision 1: Project your year-end income.

Most households can make a reasonably confident projection at the mid-year mark. Wages and salary income are largely predictable for the remaining months. Business owners can model expected H2 revenue and distributions. Retirees can update RMD projections and Social Security receipt schedules. The result is a rough estimate of where total household income will land for the year, and therefore which tax bracket the household will be in for capital gains purposes.

This matters because mid-year is when the year's tax bracket actually becomes knowable. A January estimate is unreliable. A December estimate is too late to act on. June is the sweet spot — enough of the year is behind you to project the remainder with confidence, and enough time remains to execute strategy that depends on the bracket projection.

For households projecting to be below the NIIT threshold ($250,000 MAGI for married couples filing jointly), the effective long-term capital gains rate is 15% rather than 23.8%. Any planning that takes advantage of this — for example, deciding whether to realize gains in the current year — should be sized based on the actual projected MAGI, not the bracket the household ended up in last year.

For households projecting to be above the NIIT threshold, a capital loss may also reduce net investment income subject to the 3.8% tax. The effect is limited by the NIIT calculation and is not automatic for every dollar, as our NIIT 2026 explainer explains.

For households projecting to be in or near the 0% long-term capital gains bracket (taxable income below $98,900 for married couples filing jointly), mid-year is the time to plan intentional gain realization to fill the bracket. The exact amount of headroom available depends on the year's actual income, and the projection at June is reliable enough to act on.

Decision 2: Inventory your realized gains and losses to date.

Pull a year-to-date realized gains and losses report from every brokerage account. Most platforms make this easy. The report tells you what's already locked in: which gains have been recognized through rebalancing trades, which losses have been booked through harvesting, what the net realized position is.

This number is the foundation for second-half planning. If you've already realized $40,000 in long-term gains from rebalancing earlier in the year, your second-half harvesting should be sized to offset some or all of that, depending on what bracket you're projecting into. If you've already harvested $25,000 in losses and have no realized gains to absorb them, the strategic question becomes whether to seek out matched-pair opportunities in the second half (to spend the losses productively on intentional basis-raising) or to bank them as carryforward for future use.

Most investors don't pull this report at mid-year and end up making December decisions in a vacuum. The full-year picture isn't visible without it, and the right H2 strategy depends on what H1 produced.

Decision 3: Identify positions with embedded losses to act on while opportunities exist.

This is where the mid-year mark in a high-volatility year produces unusual value. Despite the index being at all-time highs, lot-level scanning at June 4 would surface meaningful harvestable losses across most diversified portfolios. The opportunities to act on, in priority order:

Position-level losers in lagging sectors. Consumer staples are down meaningfully YTD. Healthcare has lagged. International developed markets have underperformed U.S. equities. Specific positions in these areas may be sitting on harvestable losses at the position level, not just the lot level. These are the most straightforward harvests.
Lot-level losers in winning positions. Most diversified holdings contain individual lots purchased during the late-October 2025 peak or during the brief February-March recovery attempts. These lots are still underwater even though the position overall has recovered. Lot-level scanning surfaces them; position-level scanning doesn't. As our unrealized losses hiding in your winners deep dive details, these opportunities can be substantial in aggregate even when no individual lot's loss is large.
Recent purchase lots in volatile names. Lots purchased in the last 60-90 days are especially worth checking. Names that have given back recent gains may have lots with quickly-acquired losses, sometimes 8-15% below the recent purchase price even when the position has been a long-term winner.

Acting on these opportunities now, in June, accomplishes two things. It locks in losses while they exist (markets can recover and erase them by December). And it positions the household to deploy those losses strategically in the second half — against matched-pair gain realization, against rebalancing trades that will need to happen anyway, or banked for future years.

What the All-Time-Highs Narrative Gets Wrong

The dominant narrative in mid-2026 financial press — "the market is at all-time highs, things are great, sit tight" — is correct as a summary of where the index is and dangerously misleading as a framework for what to actually do with a taxable portfolio. Three specific errors creep into investor thinking when they take the narrative literally.

Error 1: Conflating index level with portfolio composition. An individual investor's portfolio is not the S&P 500. It contains specific positions in specific weights with specific cost bases that have nothing to do with the index's headline number. A portfolio held by an investor since 2018 has positions with very different cost basis structures than one started in 2024. A portfolio overweight to technology has experienced a very different first half of 2026 than one overweight to consumer staples. The index's record high tells you nothing about whether any individual position in your portfolio is harvestable.

Error 2: Equating position-level gains with absence of harvestable losses. A position can be up 18% year-to-date and still contain lots sitting at losses, as documented throughout this site. The position-level view that brokerage apps display by default obscures these opportunities entirely. The investor who looks at their brokerage app and sees a sea of green concludes (incorrectly) that there's nothing to do. The investor who runs lot-level scanning sees dozens of small individual losses scattered throughout the portfolio, each individually small but cumulatively significant.

Error 3: Assuming the second half will provide the harvesting opportunity. Historically, second halves of years are roughly evenly split between strong recoveries and meaningful drawdowns. In a year like 2026 with already-elevated volatility, the H2 distribution is wider than usual — strong second halves and weak second halves are both more likely than in a typical year. Waiting for "more harvesting opportunities" in H2 assumes those opportunities will arise. They might. Or they might not, in which case the H1 opportunities that existed during the February-March drawdown will have been the year's main chance to harvest, and the investor who waited to act will have missed them.

What to Do Specifically in the Next 30 Days

Concrete steps, in order of how much value they tend to produce:

Step 1: Pull lot-level holdings reports from every brokerage account. Identify the individual lots sitting at losses across all positions. Sort by size of unrealized loss. The largest losses are the most actionable. Don't filter by position-level performance — include positions that are up overall, because lot-level losses inside winners are often where the biggest opportunities hide.

Step 2: Project your year-end income and 2026 bracket. Determine whether you'll be above or below the NIIT threshold. Determine whether you have 0% bracket headroom available. Determine your effective marginal rate on long-term gains. These numbers drive every other decision below.

Step 3: Inventory your year-to-date realized gains and losses. Subtract realized losses from realized gains. The net is your "starting position" for H2 strategy. If net realized is significantly positive, prioritize harvesting losses to offset. If significantly negative, prioritize banking losses or executing matched pairs.

Step 4: Execute the obvious harvests now. Position-level losers should be harvested while the losses exist. Don't wait for the position to recover, don't wait for the next leg down. Capture the loss now, replace with a correlated substitute, move on. Hesitation in volatile markets typically costs investors the opportunity they were waiting for.

Step 5: Decide on H2 matched-pair strategy. If your tax position calls for basis-raising (high embedded gains in the portfolio, expected long-term holding, household income high enough that matched pairs save meaningful tax), plan to execute matched pairs in the second half. Identify candidate gain positions to sell. Plan the corresponding loss harvests. Schedule the execution.

Step 6: Coordinate around scheduled events. RSU vests, ESPP purchases, planned IRA contributions, and dividend reinvestments all create wash sale risk if they fall within 30 days of a loss harvest. The RSU wash sale trap case study details how easily this goes wrong. Pull the calendar of scheduled events for the remainder of 2026 and plan harvesting activity around them.

For most investors, these six steps require a weekend of work — manageable but real. For investors with continuous lot-level harvesting software running on their portfolios, these decisions are happening automatically every market day; the mid-year review is more of a strategic check-in than an execution sprint.

Why Mid-Year Matters More in High-Volatility Years

In a steady up year — 2017, 2019, much of 2021 — mid-year planning matters less because opportunities are roughly evenly distributed across the year and December scanning catches the available losses adequately. In a high-volatility year like 2026, mid-year planning matters dramatically more because the distribution of opportunities is heavily concentrated in specific periods (the February-March drawdown produced more harvestable losses across most portfolios than the rest of the year combined will likely produce). Waiting until December to act means missing the year's main opportunity entirely.

This is the practical case for comparing continuous monitoring with an annual review, as detailed in our continuous versus annual tax-loss harvesting guide. More frequent monitoring can identify temporary loss lots. Whether selling them improves the result must still be evaluated trade by trade.

Losses already realized in the first half can also be considered alongside planned gains later in the same tax year. Using a loss to realize a gain can raise basis, but it consumes a tax asset rather than creating a free permanent step-up. The right comparison includes the future value of the carryforward, state taxes, the holding period, and the investor's expected future rate.

The Bigger Picture

Mid-year planning is useful because it leaves time to act on information that is already clearer than it was in January. It is a checkpoint, not a prediction: update the income estimate, reconcile realized gains and losses, inspect lots, and review the purchase calendar before placing a trade.

For the rate brackets that determine the value of this activity, see capital gains tax rates 2026. For investors near the NIIT threshold, see our NIIT 2026 explainer. For gain-and-loss coordination, see our matched-pairs guide. State treatment can change the answer, so consult state capital gains tax rates 2026 and a tax professional for the applicable jurisdiction.

A headline index level cannot answer a lot-level tax question. Review the actual holdings now, but act only when the loss, replacement, wash-sale calendar, and expected tax benefit support the trade.