Daniel J. Hemel (NYU), Ordinary Loss Harvesting: A Tax Shelter of Treasury’s Own Making, 192 Tax Notes Fed. 2191 (Sept. 21, 2026):

Tax loss harvesting typically allows investors to generate capital losses that they can use to offset capital gains and up to $3,000 per year in ordinary income. A new type of tax-aware strategy — ordinary loss harvesting — offers high-net-worth investors a different, and quite extraordinary, opportunity: to generate ordinary losses that can offset potentially unlimited amounts of active business income.

Ordinary loss harvesting strategies have drawn billions of dollars in investment from high-income households. They have also drawn scrutiny from Treasury officials. Speaking at the Wall Street Tax Association on July 21, Kevin Salinger, who recently became the acting assistant Treasury secretary for tax policy, remarked, “We have seen pitch decks where they advertise that if you invest a million dollars, you may get a $300,000 ordinary loss.” Salinger advised taxpayers “to be cautious when something looks too good to be true, because it probably is.” He added, “We’re not here to be overbroad or disruptive, but we are also not prepared to turn the blind eye to aggressive planning.”

In fact, Treasury has not only turned a blind eye to ordinary loss harvesting but has affirmatively facilitated the strategy. Ordinary loss harvesting only works because Treasury has decided not to follow the plain text of the passive activity loss statute. Blame for the revenue losses associated with ordinary loss harvesting lies not at Wall Street’s feet but at Treasury’s own. The fix is not for taxpayers “to be cautious,” but for Treasury to apply the law that Congress wrote.

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