Using Leverage and Tax Loss Harvesting to Supercharge After-Tax Returns

For most investors, the idea of leverage conjures images of risk: margin calls, debt spirals, or speculative bets gone wrong. But for those with a disciplined strategy, leverage can be a powerful tool—especially when paired with tax loss harvesting.

Used properly, borrowing against your portfolio (whether via margin, a securities-based loan, or even structured borrowing strategies) allows investors to maintain exposure to long-term winners while freeing up capital for new opportunities. When combined with tax loss harvesting, this creates a unique opportunity to optimize after-tax returns without needing to sell positions and trigger taxable events.

In this article, we’ll explore how smart investors are using leverage and tax loss harvesting together—and how automation and AI tools make it possible for even non-institutional investors to take advantage of this strategy.

The Problem with Selling: Realizing Gains Too Early

Imagine you’ve held a large position in Broadcom (AVGO) since early 2020. Back then, the stock traded around $300. As of mid-2025, it's surpassed $1,600, with a nearly fivefold return. Congratulations, you’ve made a great call. But now, you’re looking to diversify. Perhaps you want to invest in healthcare, infrastructure, or international stocks.

Here’s the challenge: Selling your Broadcom stock means realizing hundreds of thousands in long-term capital gains. At a 20% federal rate (plus potential state taxes), you’re looking at a significant tax bill.

Rather than sell and incur taxes, some investors use portfolio leverage—borrowing against appreciated assets to generate liquidity, then using that liquidity to rebalance or deploy into new ideas.

But here’s where it gets interesting: tax loss harvesting allows you to offset the realized gains if you do sell—and, even better, it can work in tandem with your borrowing strategy.

Case Study: Borrowing and Harvesting Simultaneously

Let’s look at a concrete example.

Investor Profile:

• $1.5M in Broadcom (AVGO), bought in early 2020

• $100K in diversified tech names bought in late 2021: Zoom, Shopify, Teladoc

• Recently declined, these names are now worth $40K

• The investor wants $200K in liquidity without selling Broadcom and triggering taxes

  
  

Strategy 1: Sell Broadcom

Selling $200K of AVGO might generate ~$170K in taxable gains. At 20%, that’s a $34,000 tax hit.

Strategy 2: Use Leverage + Tax Loss Harvesting

The investor borrows $200K at 5.5% against the portfolio via a margin loan or securities-backed line of credit (SBLOC). At the same time, they sell the $60K in losses (Zoom, Shopify, Teladoc), generating $60K in capital losses.

If they decide to sell $60K of AVGO in the future, they can offset the gain with the harvested loss—saving $12,000 in taxes. And if they continue to harvest losses annually, they can build up a loss bank that offsets gains over time as they trim or exit the Broadcom position in a tax-efficient way.

This strategy gives them the flexibility to unlock cash, avoid immediate taxes, and smooth gains over time—and it’s especially effective in volatile markets where loss harvesting opportunities are abundant.

The Real Advantage: AI-Powered Automation

These strategies used to require a spreadsheet, tax advisor, and constant attention. But with automated tax loss harvesting tools powered by AI, investors can now:

• Identify loss lots in real time

• Avoid wash sale violations by selecting alternative assets or ETFs

• Reinvest capital to maintain market exposure

• Track carryforward losses and apply them efficiently year over year

  
  

This means that as you borrow, rebalance, or exit concentrated positions, the software is continually scanning for losses you can use to soften the tax blow. It's a sophisticated technique made simple through technology.

What About Risk?

Of course, using leverage introduces risk. If markets fall sharply, margin calls can force liquidations—potentially at a loss. But when used conservatively—borrowing no more than 20–30% of portfolio value—leverage can be a powerful tool for high-income investors who want flexibility without triggering taxes prematurely.

In fact, many wealth management firms quietly offer these strategies to their ultra-high-net-worth clients. The difference now is that AI-driven platforms make this available to a broader set of investors, often for a flat monthly fee or much lower cost than traditional advisory services.

The Power of Compounding Tax Savings

Consider this: If you save $10,000 per year in taxes through harvesting and reinvest those savings with a 7% annual return, you’ll have over $150,000 after 10 years—just from tax optimization. And that doesn’t include the gains you preserve by staying fully invested instead of holding cash for future rebalancing.

For young professionals or investors in high-income brackets, these savings compound meaningfully. Tax efficiency is often the highest ROI improvement you can make in your investing strategy—higher than fees, fund selection, or even marginal performance improvements.

Leveraging the Right Way

To be clear, we’re not advocating margin speculation. The strategy is about:

• Unlocking flexibility in concentrated portfolios

• Maintaining long-term exposure without triggering taxes

• Using short-term losses to offset future gains

• Keeping your portfolio fully invested

  
  

Leverage is the vehicle, and tax loss harvesting is the fuel that makes the ride smoother and more efficient.

Final Thoughts

In a world where investors are seeking both flexibility and tax efficiency, combining leverage with automated tax loss harvesting offers a powerful, underutilized solution.

You don’t need to be a hedge fund to use these strategies. With today’s AI tools, you can automatically scan for losses, maintain exposure through smart swaps, and manage your portfolio proactively.

If you’re sitting on big winners and wondering how to diversify without getting crushed by capital gains taxes, consider borrowing—and harvesting. Together, they let you act like an institution while keeping your taxes under control and your money working.

In the long run, tax-efficient investing isn’t just smart—it’s a superpower.