Tax-Loss Harvesting Savings Estimator

Model: Geometric Brownian Motion (GBM), the standard continuous-time model for stock prices, same foundation as Black-Scholes.

Each lot's daily price follows: S(t+1) = S(t) × exp((μ - σ²/2)Δt + σ√Δt × Z) where Z ~ N(0,1), μ = expected annual return, σ = annual volatility, Δt = 1/252.

Simulation steps (per trial):

1. Portfolio is divided equally across N lots, each starting at its cost basis.
2. Simulate 252 trading days of price movement for each lot independently.
3. On each day, check if any lot's price is below cost basis by more than the harvest threshold.
4. If so, harvest the loss, reset the lot's cost basis to the current price.
5. Each lot can only be harvested once per 31-day wash sale window.
6. Sum all harvested losses, multiply by tax rate = tax savings for that trial.

Simplifications: All lots assumed equal size and starting at cost basis (no existing gains/losses). Correlation between lots not modeled. Wash sale window simplified to a 31-day cooldown per lot. Does not model cost-basis reduction on repurchase (deferred tax, not eliminated). Long-term vs short-term rate distinction not modeled.

What this tells you: This estimates the gross tax benefit in year one from actively harvesting. The actual long-term benefit is lower because harvesting reduces future cost basis. Think of it as a tax deferral with time-value-of-money benefit, not a permanent tax elimination.