M1 does not offer tax loss harvesting, rather a lot relief method (LRM) that attempts to minimize the tax impact of selling securities.
When you initiate a withdrawal for an amount greater than your cash available for withdrawal or place a manual sell order of your whole portfolio, our algorithm will identify the most overweight Slices in your Pie and sell out of those to bring them closer to their target allocations.
From these identified Slices, tax lots are sold based on our tax minimization strategy which aims to help clients reduce the amount of taxes owed when selling securities. This is accomplished by selling tax lots in the order of lowest to highest tax burden.
Manual sell orders placed on specific Slices will follow the same tax minimization strategy.
Below is the order in which lots will be sold from lowest to highest tax burden:
Short-term capital loss, from the biggest loss to the smallest
Long-term capital loss, from the biggest loss to the smallest
Short-term zero gain/loss
Long-term zero gain/loss
Long-term capital gains, from the smallest gain to the biggest
Short-term capital gains, from the smallest gain to the biggest
If no lots are available that result in short term loss, the system will move to the next category until lots that result in the desired effect are available.
For example, if all the lots you hold short term would result in gains, the system will review lots held long term for any that will result in losses. If no long-term losses are available, the system will move down the list, reviewing lots for each category.
Please note that M1’s tax minimization method will sell lots resulting in long term gain before lots resulting in short term gain, even if the total gain would be lower if short term lots were used. This logic is based upon the preferential tax treatment for long term gains. While short term capital gains are taxed at your ordinary marginal tax rate, long term gains are taxed at 0%, 15%, or 20%, based on your income.
Tax Loss Harvesting
Tax loss harvesting is when an investor sells securities at a loss to counteract a tax liability. This strategy is sometimes used to reduce the recognition of short-term capital gains. While M1 does not currently offer a specific tax loss harvesting option, our tax minimization strategy focuses on generating losses before gains where possible.
Please note: Crypto Accounts use FIFO method (first in, first out). With this, the earliest currency purchased will be the first sold. You are unable to use FIFO or LIFO for the rest of your M1 Invest accounts.
M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
Brokerage accounts on the M1 platform are either fully disclosed to APEX Clearing or cleared through M1 Finance LLC. Please look at your account statement to determine how your account is cleared.
All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future performance. Using margin can add to these risks. Users utilizing APEX cleared margin accounts should review the APEX margin account risk disclosure before borrowing. Users utilizing M1 cleared margin accounts should review the M1 margin account risk disclosure before borrowing. M1 Margin Loans are available on margin accounts with at least $2,000 invested per account. Not available for Retirement or Custodial accounts. Margin rates may vary.
Brokerage products and services are offered by M1 Finance LLC, Member FINRA / SIPC, and a wholly owned subsidiary of M1 Holdings, Inc.
This content was generated using artificial intelligence and is intended for informational and educational purposes only. While reasonable efforts are made to ensure accuracy, AI-generated outputs may omit key context; and should not be construed as financial, investment, legal, or tax advice. Users should independently verify all information and consult a qualified professional before making any financial decisions.
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