Using Long/Short Strategies to Offset Capital Gains
Levered long/short strategies can do more than seek alpha — they can help investors offset capital gains in a tax efficient way. For clients with large, embedded gains or ongoing realization liquidity-events, these strategies can generate offsets or deductions that meaningfully reduce the tax impact of rebalancing, diversifying, or selling appreciated assets.
The benefit isn’t just the offset itself. By reducing the tax friction of realizing gains, investors regain control and flexibility: they can reposition portfolios and change risk profiles amid a changing investment landscape or, one can unwind concentrated positions with the goal of reducing idiosyncratic risk all [s2.1]without triggering an outsized tax bill.
For investors with recurring capital gains — from business sales, real estate, or active portfolio turnover — this approach can be a powerful tool for smoothing tax liabilities while maintaining market exposure.
And spoiler alert. Long/short strategies can be used in different asset classes that will not only introduce a return stream that behaves differently from traditional equities, but also introduce a different tax benefit—namely offsetting individual ordinary income.
The benefit isn’t just the offset itself. By reducing the tax friction of realizing gains, investors regain control and flexibility: they can reposition portfolios and change risk profiles amid a changing investment landscape or, one can unwind concentrated positions with the goal of reducing idiosyncratic risk all [s2.1]without triggering an outsized tax bill.
For investors with recurring capital gains — from business sales, real estate, or active portfolio turnover — this approach can be a powerful tool for smoothing tax liabilities while maintaining market exposure.
And spoiler alert. Long/short strategies can be used in different asset classes that will not only introduce a return stream that behaves differently from traditional equities, but also introduce a different tax benefit—namely offsetting individual ordinary income.
DISCLOSURES
Axxcess Wealth Management, LLC (“AWM”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where AWM and its representatives are properly licensed or exempt from licensure.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
This information is general in nature and should not be considered tax advice. Investors should consult with a qualified tax consultant as to their particular situation.
Diversification does not ensure a profit or guarantee against loss.
The use of leverage, as part of the investment process, can multiply market movements into greater changes in an investment’s value, thus resulting in increased volatility of returns.
Hedge funds (or other alternative investment funds) are designed only for sophisticated investors who are able to bear the risk of the loss of their entire investment. An investment in a hedge fund should be viewed as illiquid and interests in hedge funds are generally not readily marketable and are generally not transferable. Investors should be prepared to bear the financial risks of an investment in a hedge fund for an indefinite period of time. An investment in a hedge fund is not intended to be a complete investment program, but rather is intended for investment as part of a diversified investment portfolio. Typically interests in a hedge fund are not registered under the US Securities Act of 1933, as amended (“the Securities Act”), and the fund is not registered as an investment company under the US Investment Company Act of 1940, as amended (the “Investment Company Act”), and as such, investors will not be afforded the protections of those laws and regulations. A prospective investor should carefully review all offering materials associated with a hedge fund, including the risk factors, and should consult his or her own legal counsel and/or financial advisor prior to considering an investment in a hedge fund.
The use of short selling entails a high degree of risk, may increase potential losses and is not suitable for all investors. Please assess your financial circumstances and risk tolerance prior to short selling.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
This information is general in nature and should not be considered tax advice. Investors should consult with a qualified tax consultant as to their particular situation.
Diversification does not ensure a profit or guarantee against loss.
The use of leverage, as part of the investment process, can multiply market movements into greater changes in an investment’s value, thus resulting in increased volatility of returns.
Hedge funds (or other alternative investment funds) are designed only for sophisticated investors who are able to bear the risk of the loss of their entire investment. An investment in a hedge fund should be viewed as illiquid and interests in hedge funds are generally not readily marketable and are generally not transferable. Investors should be prepared to bear the financial risks of an investment in a hedge fund for an indefinite period of time. An investment in a hedge fund is not intended to be a complete investment program, but rather is intended for investment as part of a diversified investment portfolio. Typically interests in a hedge fund are not registered under the US Securities Act of 1933, as amended (“the Securities Act”), and the fund is not registered as an investment company under the US Investment Company Act of 1940, as amended (the “Investment Company Act”), and as such, investors will not be afforded the protections of those laws and regulations. A prospective investor should carefully review all offering materials associated with a hedge fund, including the risk factors, and should consult his or her own legal counsel and/or financial advisor prior to considering an investment in a hedge fund.
The use of short selling entails a high degree of risk, may increase potential losses and is not suitable for all investors. Please assess your financial circumstances and risk tolerance prior to short selling.
