Monetizing Market Drops: How to save money with tax loss harvesting in your reinsurance company
Tax-loss harvesting is a powerful yet often overlooked strategy that can generate meaningful, low-risk alpha within an auto dealer’s reinsurance investment account. By systematically realizing losses inside the portfolio, a dealer can offset realized gains and potentially enhance after-tax returns.
Market volatility naturally results in some positions trading below their purchase price. Selling these “red” lots and reinvesting the proceeds preserves market exposure while locking in a deductible capital loss. The resulting tax savings compound within the corporate structure, which can later be distributed to the dealership or retained to support claims. In short, money saved through tax-loss harvesting can ultimately boost distributable cash flow.
Some reinsurance entities may be able to carry capital losses back three years and forward up to five years to offset taxable capital gains. This may create unique opportunities to reduce current tax liability and “recapture” prior taxes paid.
Consistent tax loss harvesting can help smooth taxable income, reduce the risk of spikes in estimated tax payments, and preserve working capital for dealership operations.
Ready to monetize volatility? Speak with us today to embed tax-loss harvesting in your reinsurance portfolio. Take the first step by scheduling a portfolio review before year-end.
Source: IRC § 1212(a)
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