PT  - JOURNAL ARTICLE
AU  - Nathan Sosner
AU  - Stanley Krasner
AU  - Ted Pyne
TI  - The Tax Benefits of Relaxing the Long-Only Constraint: <em>Do They Come from Character or Deferral?</em>
AID  - 10.3905/jwm.2019.1.068
DP  - 2019 Jan 08
TA  - The Journal of Wealth Management
PG  - jwm.2019.1.068
4099  - https://pm-research.com/content/early/2019/01/08/jwm.2019.1.068.short
4100  - https://pm-research.com/content/early/2019/01/08/jwm.2019.1.068.full
AB  - In this study, we propose a decomposition of the total tax benefit (or liability) of a strategy into what we define as character and deferral components. Our decomposition is mathematically straightforward and intuitive, and it allows for a quick and informative assessment of tax benefits of different tax-aware strategies without modeling various investor-specific situations. We use this character-deferral decomposition to identify the source of tax benefits resulting from relaxation of the long-only constraint. Our empirical evidence shows that, for tax-aware strategies, relaxing the long-only constraint results in a drastic increase in their tax benefits, in particular owing to an increase in the character benefit. We conclude that tax-aware relaxed-constraint strategies are more attractive to taxable investors than their long-only counterparts.