Tax Overlay

Repricing family: Core book Single-Name Cycle-Beta All Weather Regime Rotation Tax overlay

Operational efficiency layer applied on top of any product (Core, Single-Name, Cycle-Beta, All Weather) for taxable accounts. Estimated 0.4–1.5% annual tax-equivalent return via systematic loss harvesting using pre-registered "substantially-similar but not identical" pair structures.

Status

Phase 5 spec complete. Engineering build (~2-3 weeks) + counsel review of single-name TLH pairs queued for pre-launch of taxable product variant.

Mechanism

Systematic tax-loss harvesting (TLH) using pre-registered "substantially-similar but not identical" pair structures documented in each product's universe spec. Wash-sale rule (IRS Reg §1.1091) compliance achieved by:

Pre-registered TLH pairs at universe-doc level (NEM ↔ GOLD; SPY ↔ VTI; AGG ↔ BND; GLD ↔ IAU; etc.)
31-day window discipline automated and monitored
R2 synthetic substitutes (deep-ITM ETF call spreads) when both anchor and TLH pair are simultaneously at a loss

Lot management: Specific Identification (SpecID) with HIFO (Highest In First Out) default. Institutional standard.

Loss threshold: harvest triggered when individual position is at unrealized loss ≥ -3% (avoids harvest-driven churn on small fluctuations).

Estimated yield (modeled)

Per institutional benchmarks (Wealthfront, Betterment, Schwab Intelligent Portfolios):

Product	Position count	Estimated TLH yield (annual tax-equivalent return)
Core book	5 ETFs	0.4% – 0.8%
Single-Name Sleeve	28 single names	0.8% – 1.5% (highest range; many positions, high vol)
Cycle-Beta Sleeve	6 ETFs	0.4% – 0.8%
All Weather Wrap	39 total positions	0.6% – 1.2% (mid-range; benefits from SN's harvest-rich profile diluted by lower-vol Core/CB)

For an LP at the top federal capital gains bracket (23.8% with NIIT), TLH yield translates to meaningful annual tax-equivalent value:

Core book: 0.10–0.19% / yr in deferred tax liability
SN Sleeve: 0.19–0.36% / yr
All Weather: 0.14–0.29% / yr

For a $10M allocation, that's $10k – $36k per year in tax-equivalent value.

Counsel review status

Pair structure	Counsel review
ETF pairs (SPY/VTI, AGG/BND, GLD/IAU)	Industry standard (Wealthfront, Betterment, Schwab); wash-sale-clean per established practice
Single-name pairs (NEM/GOLD, LMT/NOC)	NEEDS COUNSEL REVIEW — pre-launch requirement for taxable product
CCJ TLH pair	Universe expansion needed — KAP unavailable on free US data; alternatives are R2 synthetic via URA / URNM ETFs

At v1 launch, the Tax Overlay uses ETF-pair TLH only. Single-name TLH is added post-counsel review.

Implementation roadmap

Step	Estimated effort	Status
Architecture spec	Done	Complete
Counsel review (single-name pairs)	2-4 weeks (legal review)	Required pre-launch
Custodian capability survey + per-LP onboarding playbook	1-2 weeks ops work	Pre-launch
Code build (cost basis tracking, wash-sale window logic, TLH execution engine)	2-3 weeks engineering	Phase 5
Live forward measurement framework	Post-launch	Continuous

Honest scope boundaries

The yield estimates are modeled based on institutional benchmarks. Realized yield requires live forward measurement per LP — actual benefit depends on account size, marginal tax rate, holding period, and execution discipline.

Single-name TLH pairs require counsel sign-off before going live in taxable products. Conservative interpretation at v1 launch: ETF pairs only; single-name pairs added post-counsel review.

Full architecture documented in docs/tax_overlay_scope.md. The Tax Overlay does not change underlying portfolio mechanics — it changes trade execution timing for tax purposes. Subscribers in qualified (IRA / 401k / etc.) accounts can ignore this layer; subscribers in taxable accounts should engage Macro Sentinel operations for per-LP onboarding to enable.