We study portfolio choice with multiple stocks and capital gain taxation assuming that capital losses can only offset current or future realized capital gains. We show through backtesting, using empirical distributions, that optimal equity holdings over an extended period are significantly lower...

We study the consumption-portfolio problem with realized capital gain taxation. The distinguishing feature of our analysis is that we impose on the model an important element of the tax code that has received little attention in the academic literature: the limited use of capital losses....