Highest-In/First-Out Tax Lot Accounting

CFA Level III
#1

Text says:

If tax rates are high and expected to fall it could be beneficial to recognise the tax alpha today. If tax rates are low and expected to rise, could be beneficial to wait and recognise a larger tax alpha later.

But if tax rates will fall later, isn’t it better to wait and pay the lower tax on your tax alpha later on? Similarly, if tax will rise later, shouldn’t we pay the lower tax now on the higher alpha, rather than wait?

#2

Recall that you’re talking about tax loss harvesting here: it’s better to do that when tax rates are high than when they’re low.

#3

It probably means recognizing your losses, not selling your winners.

#4

That’s exactly what it means.