Year-end isn’t just a time for tax forms and resolutions, it’s also when municipal bond investors can gather what the market has sown.

While our decades-long philosophy remains steadfast – buy quality bonds, hold them and enjoy a steady stream of tax-exempt income – this year’s market dynamics present a timely chance to identify potential tax-harvesting opportunities.

The strong rally in municipal bonds during the second half of 2025 has lifted the market value of many – but not all – bonds. Investors holding lower, older-coupon securities may still be sitting on unrealized losses that can be put to work.

At the same time, stocks have had a strong run this year, prompting many investors to realize gains. Pairing those gains with declines in some municipal bond prices can be a smart way to manage taxes while reinforcing long-term income.

Why It’s ‘Harvest Season’ for Munis

By realizing those paper losses through a carefully structured tax swap, a form of tax-loss harvesting, investors can offset capital gains elsewhere while maintaining their position in the muni market.

The result is stronger income potential without losing a day of tax-free interest, turning market fluctuations into long-term advantages. It’s stewardship without management: Investors stay informed and purposeful about their holdings while letting time, not trading, do the work.

The goal isn’t to chase short-term price moves, but to use periods of market fluctuations to strengthen the foundation of investors’ tax-exempt income stream.

As we said earlier this year (“Using the Tax Swap Now”), a well-timed tax swap can help investors make the most of changing market conditions. With yields across the municipal market still elevated by historical standards, investors once again have a timely opportunity to review their holdings, identify candidates for tax swaps and ensure their portfolio is positioned for both strong income and tax efficiency in 2026.

How a Tax Swap Works and Why It Still Matters

A tax swap involves an investor who realizes gains in the stock market and also owns municipal bonds whose market price has softened. By selling both, the loss on the bonds can help offset the taxable gains from stocks, and the proceeds can be used to purchase other bonds at today’s attractive yields.

This simple move realizes a capital loss for tax purposes while keeping the investor’s portfolio income intact. The replacement bond must be “substantially different” to avoid violating the IRS wash-sale rule, which disallows losses on identical securities repurchased within 30 days.

Speak to a Muni Pro

You've enjoyed reading our insights, now speak with the pros to find the right bonds for you.

As the calendar year winds down, taking the time to review your municipal holdings can pay dividends, not in trading profits but in peace of mind. Because execution and settlement deadlines tighten as the year closes, it’s wise to begin the process early.

Consult your tax professional to confirm how this strategy applies to your portfolio, and we can help you explore the municipal opportunities that make the most sense for you.