Tax-Loss Harvesting, the Bulgarian Way

How to realise losses at year-end lawfully – and where the line with market manipulation runs. A follow-up to “Personal or Company Brokerage Account” · Up to date as of 8 October 2026.

In the previous article we saw that a company carries its tax loss forward for up to five years (Art. 70 of the Corporate Income Tax Act, CITA). So it has no need to realise losses at all costs before 31 December. An individual has no such option: their result from transactions in financial assets is closed at the end of every calendar year. Hence the question of when, how and within what limits an investor acting personally can “harvest” their losses before the year is out.

What tax-loss harvesting is

Tax-loss harvesting is the deliberate sale of a position that is currently at a loss. The aim is for the realised loss to reduce taxable gains already realised in the same year. If the investor still believes in the asset, they buy it back or buy a close substitute. That way the position in the portfolio is kept, while the loss is “locked in” for tax purposes.

It is important to understand what tax-loss harvesting is not: it does not create a loss that isn’t there. The market loss already exists; the sale merely realises it. Nor is it a free lunch: on a buy-back, the new acquisition cost is lower, so the future gain will be bigger. In most cases the tax is deferred, not eliminated. We will look at the exceptions below.

Why individuals in Bulgaria need it

Under Art. 33(3) of the Personal Income Tax Act (PITA), taxable income from the sale or exchange of shares, units and other financial assets, and from trading in foreign currency, is the sum of the gains realised during the year less the sum of the losses realised during the year. The gain or loss is determined for each individual transaction. Since 2024, a positive result is also reduced by a 10% statutory expense deduction.

The key words are “during the year”. An uncovered loss from 2026 cannot reduce a gain from 2027. If you have realised gains during the year and your portfolio is carrying unrealised losses, 31 December is a hard deadline. After that, the opportunity for that year is gone.

Example

In 2026 an investor realised a gain of EUR 8,000 from selling US shares, executed over the counter. Their portfolio holds an ETF with an unrealised loss of EUR 5,000, which they sell before year-end outside a regulated market.

The saving is EUR 450. If the investor buys the ETF back, its acquisition cost is now EUR 5,000 lower. On a future sale on a taxable venue, the bigger gain will be taxed – the tax has been deferred. But if the future sale takes place on an EU regulated market and the instrument is one of those listed in § 1(11) of the Supplementary Provisions of PITA, the gain will be exempt. In that case the saving becomes permanent.

Why the loss has to be on a non-regulated market

This is the link to the previous article. Income from transactions under § 1(11) of the Supplementary Provisions of PITA – in shares, units of collective investment schemes, rights and government securities, carried out on a regulated market or SME growth market in the EU/EEA – is exempt under Art. 13(1)(3). These transactions fall outside taxable income under Art. 33(3). That is why their result does not take part in the netting, whether it is a gain or a loss. This is also how the law is applied in practice.

The conclusion is simple but often missed: a loss realised on an EU regulated segment is useless for tax purposes to an individual. To reduce taxable gains, the sale has to be a taxable transaction. That means execution over the counter (OTC), on an MTF segment or on a third-country market, or a transaction in an instrument outside the list (ETNs, ETCs, derivatives, CFDs, crypto-assets).

The same logic works the other way round. If the investor wants a gain to be exempt, they sell on a regulated segment. If they want a loss to be recognised, they sell outside it. That is why proving the place of execution (the MIC code in the trade confirmation) matters just as much for losses. The National Revenue Agency (NRA) may disallow a loss where it is unclear where the transaction was executed. Such a loss may turn out to be exempt, i.e. non-deductible.

EU versus US: the wash sale rule

It is often said that “tax-loss harvesting is allowed in the EU but not in the US”. That is inaccurate in two ways. In the US, harvesting is perfectly legal. Only buying back the same asset within a short period is restricted. In the EU, there is no common rule, because direct taxation of income is a national competence. Each member state decides for itself, and some have their own restrictions.

Bulgaria’s PITA has no provision similar to the US § 1091 or the Irish four-week rule. The sale and the buy-back are two separate transactions, each with its own result. The US rule affects US taxpayers. For Bulgarian residents who are not taxable in the US, it is irrelevant.

There is, however, one Bulgarian feature that acts as a natural brake. Under Art. 33(4) PITA, for financial assets of the same kind acquired at different prices, the acquisition cost is the weighted average. If the investor buys more first and sells afterwards, the loss gets “diluted” in the average price. So the order is sell first, buy afterwards.

Why the last quarter in particular

The tax calendar

• By October it is already clear what gains have been realised during the year and what can be offset.
• Under Art. 11(2) PITA, income from a sale is deemed to be earned on the date of transfer. In the EU, settlement is T+2, and from 11 October 2027 it will be T+1. In the US it is already T+1. Don’t leave sales to the last business day of December, when brokers and markets run shortened hours and liquidity is low.
• From 2026, foreign-currency transactions are converted into euro at the BNB rate on the date the income is earned (Art. 10(3) PITA). The exchange-rate difference can increase or reduce the loss in euro compared with the loss in dollars.

Market seasonality

Market sayings have a real, if inconsistent, statistical basis. But it is important to quote them accurately:

• “Sell in May and go away”. The saying does not say “buy in September”. Its full version is to come back around Halloween, at the end of October. Bouman and Jacobsen (American Economic Review, 2002) found that May–October returns were lower than November–April returns in 36 of the 37 markets studied. The effect is particularly strong in Europe.
• September. Historically the weakest month for the S&P 500: an average return of −0.7% and a positive result in only 44% of cases since 1950 (LPL Financial).
• The Santa Claus rally. As defined by the Stock Trader’s Almanac, it is the last five trading days of December and the first two of January – not the whole of November and December. The average S&P 500 gain over this period has been about 1.3% since 1950.

For harvesting, the conclusion is practical. If the loss is realised at the end of October or in November and the asset is bought back soon after, you also catch the seasonally stronger period. If the sale is put off until the last days of December, the risk is that the price has already started rising and the loss has melted away. There is also a reverse effect: mass selling of losing positions before 31 December pushes their prices down, and a rebound often follows in early January (the “January effect”). Seasonality is a statistical tendency, not a promise. It should never be the only reason for a trade.

Third-quarter earnings

US third-quarter earnings season starts in mid-October with the big banks and runs until mid-November. The quarterly report (Form 10-Q) is due within 40 days of quarter-end for large and accelerated filers and within 45 days for everyone else. In May 2026 the SEC proposed an option for semi-annual instead of quarterly reporting, but the rule is not yet final. In the EU, quarterly reporting has not been mandatory since 2013 (Directive 2013/50/EU). Annual and half-yearly reports are mandatory, but many issuers publish quarterly figures voluntarily.

Earnings reports inform the decision whether to keep the asset or switch to another. But they also carry risk: the price can jump or drop sharply on the day of publication. If you plan to sell at a loss and buy back, an earnings release between the two trades is an additional market risk.

Important for insiders. If you are a person discharging managerial responsibilities at an issuer, under Art. 19(11) MAR you may not trade in its financial instruments during the 30 calendar days before the announcement of an interim or year-end report. In addition, any trade made while in possession of inside information is prohibited under Art. 14 MAR, regardless of the tax motive.

Where the line with market manipulation runs

Regulation (EU) No 596/2014 (MAR) applies to all financial instruments admitted to trading on a regulated market, MTF or OTF, and to related instruments. Under Art. 2(3), this applies irrespective of whether the transaction is carried out on a trading venue. In other words, the OTC sale we are after for tax reasons does not fall outside the scope of MAR.

Under Art. 12(1)(a) MAR, manipulation is a transaction or order that gives, or is likely to give, false or misleading signals as to the supply of, demand for or price of a financial instrument. A transaction that secures, or is likely to secure, the price at an abnormal or artificial level is also manipulation. The exception requires the person to prove they acted for legitimate reasons and in conformity with an accepted market practice (Art. 13 MAR). Tax optimisation is not an accepted market practice, so this exception is not your defence. Your defence is for the trade not to give a misleading signal in the first place.

The indicators the regulator looks at

Annex I, Section A of MAR and Delegated Regulation (EU) 2016/522 list indicators. Those directly relevant to harvesting are:

• Transactions with no change in beneficial ownership (Annex I, A(c) MAR) and so-called wash trades – arrangements to buy or sell with no change in beneficial interest or market risk, or with a transfer between parties acting in concert (Delegated Regulation 2016/522, Annex II, Section 1, point 3(a)).
• Position reversals in a short period (Annex I, A(d) MAR), especially in significant volume.
• Improper matched orders – buy and sell orders entered at almost the same time, with almost the same quantity and price, by the same person or by persons acting in concert (point 3(c)).
• Marking the close – trading around a reference time such as the close of the session that influences the reference price (point 5(d)). The last days of the year are exactly such a reference point – portfolios and funds are valued on them.
• A significant share of daily volume (Annex I, A(a)) – especially for illiquid securities, for example on the Bulgarian Stock Exchange, where even a small order can be a large share of turnover.

A framework for safe harvesting

1. A genuine trade with an unknown counterparty. The sale must be real, at market price, with no prior arrangement with the buyer.
2. No crossing between “your” accounts. Don’t sell from your personal account in order to buy the same quantity at the same moment through your company account, your spouse’s account or a related party’s account. Such a scheme is a textbook example of a transfer between persons acting in concert.
3. Distance in time. Bulgarian law requires no waiting period, but a sale and buy-back within minutes, in the same quantity, look like matched orders. A few days’ gap means real market risk, i.e. a real change in the position. An alternative is to buy back a similar but different instrument – for example an ETF on the same index from another issuer.
4. Proportionate volume. With illiquid securities, spread out your sales, use limit orders and don’t trade in the closing auction.
5. Not at the last minute. Avoid trading on 30 and 31 December, especially around the close.
6. Document your motive. A short note on the day of the trade – “realising a tax loss, rebalancing” – is not an exception under Art. 12 MAR. But it is evidence of good faith and matters for the degree of fault when the penalty is set.

Under Art. 16(2) MAR, the broker must have systems to detect suspicious orders and transactions and must notify the competent authority without delay. So don’t count on “nobody will notice” – mirror trades are flagged automatically.

Crypto-assets. A similar ban on market manipulation applies to crypto-assets under Regulation (EU) 2023/1114 (MiCA). The PITA regulated-market exemption does not apply to them, so their losses always count towards the annual result. The ban on manipulation applies to them too.

If we get it wrong anyway: the penalties

An unintentional breach does not rule out liability. Under Art. 7 of the Administrative Violations and Sanctions Act (ZANN), an administrative violation is culpable when committed intentionally or negligently. Negligent acts go unpunished only in expressly provided cases. The MAR definition itself is objective – “is likely to give” a misleading signal. In practice, an unintentional breach remains punishable, but it matters for the amount: under Art. 23(9) ZPMPZFI the FSC takes into account the circumstances in Art. 31 MAR. These include the gravity and duration of the breach, the degree of responsibility, the person’s financial strength, the profit gained or loss avoided, cooperation with the authority, previous breaches and measures to prevent recurrence. In a minor case, Art. 28 ZANN allows the sanctioning authority to issue a written warning instead of a penalty.

Penalty decrees are issued by the Deputy Chair of the FSC (Art. 24 ZPMPZFI). They are subject to judicial review.

Separate from all this is the tax risk, which is more likely than the market risk. If a loss is included in Appendix No. 5 but the sale was actually executed on a regulated segment, the loss is disallowed. Additional tax and interest are then due, and for declaring data leading to lower tax Art. 80 PITA provides for a fine of up to BGN 1,000 (EUR 511.29). Amendments are being prepared under which, from 2027, the upper limits become EUR 1,000 and EUR 500 respectively. Correcting the return yourself before the NRA spots the error limits the consequences.

Checklist for the last quarter

1. Download a year-to-date report of realised gains and losses, broker by broker.
2. Separate taxable from exempt transactions by place of execution (MIC code).
3. Pick the losing positions and check whether selling them will be a taxable transaction – outside a regulated segment, or with an instrument outside § 1(11) of the Supplementary Provisions of PITA.
4. Sell by mid-December, allowing for settlement and public holidays.
5. If you buy back, do it after the sale, with a gap in time and no crossing between related accounts.
6. Keep the trade confirmation for every trade and a short note on your motive.
7. If you are an insider at an issuer, check the closed periods under Art. 19(11) MAR.

Legislation and sources

• PITA – Art. 10(3); Art. 11(2); Art. 13(1)(3); Art. 33(3) and (4); Art. 80; § 1(11) of the Supplementary Provisions.
• CITA – Art. 70.
• Act on the Implementation of the Measures against Market Abuse with Financial Instruments (ZPMPZFI) – Arts. 23 and 24 (amended State Gazette No. 71/2026).
• Administrative Violations and Sanctions Act – Arts. 7 and 28; Criminal Code – Arts. 260a – 260c.
• Regulation (EU) No 596/2014 (MAR) – Arts. 2, 12, 13, 14, 16, 19, 30, 31, 34 and Annex I; Delegated Regulation (EU) 2016/522 – Annex II. Text: legislation.gov.uk (version as adopted by the EU) (opens in a new tab).
• US – 26 U.S.C. § 1091 (opens in a new tab); Ireland – s. 581 TCA 1997 (opens in a new tab); United Kingdom – HMRC CG51560 (opens in a new tab).
• Bouman, S., Jacobsen, B. (2002). The Halloween Indicator, “Sell in May and Go Away”: Another Puzzle. American Economic Review 92(5), 1618–1635. Abstract (opens in a new tab).
• LPL Financial – September seasonals (2025) (opens in a new tab); Stock Trader’s Almanac – Santa Claus Rally (opens in a new tab).
• Deloitte – SEC proposal for optional semiannual reporting (May 2026) (opens in a new tab); European Commission – move to T+1 (opens in a new tab).

This article is for information only and does not constitute individual tax or legal advice, nor an investment recommendation. The legislation is stated as of 8 October 2026.