Cost basis and tax lots
A tax lot records a quantity acquired with its cost basis and acquisition date. A position can contain several lots with different gains, losses, and holding periods. In the U.S., a capital gain or loss generally compares sale proceeds with adjusted basis; short-term and long-term treatment also depends on the holding period. See the IRS explanation of capital gains and losses. Consider this simplified individual-lot example for a U.S. account. One ticker trades at $80, and each lot contains ten shares:
Both five-share sales produce $400 of proceeds, but their gains and losses differ. This example excludes fees, foreign exchange, basis adjustments, and loss-disallowance rules. It illustrates why lot selection matters, rather than a tax benefit guaranteed by either sale.
Jurisdiction and lot method change the calculation
Tilt’s U.S. tax calculation supports several lot-selection methods, including first-in, first-out and last-in, first-out, as well as tax-aware selection. Its Canadian tax calculation uses average cost, consolidating the supplied lots for the same asset into a weighted average cost. Do not interpret the individual-lot example above as Canada’s average-cost calculation. Configured jurisdiction, tax rates, holding-period settings, and lot method affect the estimates. Check the effective account preferences rather than assuming an organization’s defaults apply. For foreign-currency holdings, cost-basis currency and the relevant exchange-rate data also matter.Harvesting losses has an investment tradeoff
Tax-loss harvesting sells a position at a loss with the aim of obtaining a usable tax benefit. The proposal may replace the exposure with another permitted investment or retain some deviation from the target. Costs, restrictions, and modeled risk can make a loss sale unattractive even when an unrealized loss exists. Tax emphasis changes the optimizer’s preference among possible portfolios. A configured realized-gain target is distinct: Tilt can search across tax emphasis to approach that target within its configured tolerance. Inspect the achieved result; a preference or target alone is not a guarantee that every run reaches it. How optimization makes tradeoffs explains how these inputs interact. A modeled benefit from losses also depends on assumptions about gains available to offset. Tilt’s tax calculation assumes gains are available to offset when estimating a net loss benefit; the calculation does not establish that those gains exist for the client. A proposed loss amount and an immediately usable tax saving are different quantities.Substitute securities can preserve an existing allocation
Tilt supports configured substitution pairs: two securities that the optimizer can choose between while preserving their combined current portfolio weight. You can configure these pairs in account, model, or organization optimization settings. Check the account’s effective settings to see which pairs apply. For example, suppose you configure VTI and ITOT as a pair and an account holds 10% in VTI and none in ITOT. The optimizer keeps that combined 10% in one member of the pair. It can retain VTI or propose selling VTI and holding ITOT, depending on tax lots, costs, risk, and restrictions. A loss on VTI can make the switch attractive for tax-loss harvesting, but configuring the pair does not require the optimizer to harvest that loss. The pair preserves the weight already held at the start of the optimization. It does not set a new target weight or require a purchase when neither security is held. A no-trade restriction or another constraint can prevent a switch; review the proposal to see which holding and trades Tilt selected.Substitution pairs and sleeve ETF alternatives serve different purposes
Sleeve ETF alternatives define permitted investments for implementing a sleeve’s exposure. Tilt also accounts for those alternatives when attributing holdings to sleeves. A substitution pair constrains the combined weight of two existing holdings during optimization. Configure sleeve alternatives when you want an allowed ETF to count toward a sleeve; configure a substitution pair when you want to preserve an existing pair’s combined allocation while allowing a switch. See Models, sleeves, and benchmarks.A configured pair still needs a wash-sale assessment
VTI and ITOT illustrate the investment substitution mechanism. Configuring them as a pair does not establish that they avoid U.S. wash-sale rules. The IRS requires a facts-and-circumstances assessment of whether securities are substantially identical; a different ticker alone does not establish the tax treatment. See IRS Publication 550. Review the replacement security and the client’s relevant purchases and sales before treating a proposed loss as deductible. The loss-disallowance checks described below use recorded asset identities and timing; substitution-pair settings do not define tax equivalence between securities.Loss-disallowance rules require broader context
U.S. wash-sale rules can disallow a loss when substantially identical securities are acquired within the applicable period around a loss sale. Canada’s superficial-loss rules consider acquisitions of identical property by the taxpayer or an affiliated person and ownership at the end of the relevant period. See IRS Publication 550 and the CRA capital-gains guide. Tilt incorporates recorded purchase and loss-sale timing from other saved accounts of the same client, or from accounts in the linked household. This aggregation uses matching asset identities and recorded dates. It does not establish that every substantially identical or identical investment, affiliated person, or external transaction has been identified. Configuring an ETF alternative is an investment implementation choice, not a tax-law determination that the replacement avoids loss disallowance. The completeness of connected accounts, household relationships, tax-lot data, and transaction timing therefore affects the assessment. Planned or later purchases can also change the outcome after a proposal is created.Read estimated outcomes in context
A proposal’s tax report describes estimated consequences of proposed trades under the run’s data and assumptions. It is not a completed tax return or evidence that trades have executed. Review realized gains and losses, lot method, rates, replacement exposure, and any data warnings together. For an existing appreciated portfolio, reducing drift may realize gains. Preserving appreciated holdings may defer those gains while retaining risk relative to the target. Compare the tax estimate with the allocation and risk outcome before accepting either approach. Reports and backtests explains the available evidence. Review a rebalance covers the separate proposal and execution review.Wash-sale rules may disallow a loss if substantially identical securities are bought within 30 days before or after the sale, including in the client’s other accounts, such as IRAs or a spouse’s accounts. The Platform’s wash-sale checks cover only accounts on the Platform, so confirm the client’s full position with a qualified tax professional.
Tilt provides portfolio technology, not investment, tax or legal advice, and is not a registered investment adviser or broker-dealer. The advisor makes all investment decisions, including whether to accept a proposal and submit trades, directly or through approval rules the advisor configures. Trades are executed through the client’s custodian. Estimates depend on the data and assumptions recorded for the account; confirm the client’s tax treatment with a qualified tax professional.