Your premise is based on funds making a lot of money, which they want to shield from taxes. How do you think they make money? (Caveat: most HFs underperform, but that’s a different issue entirely)
Lose money in the markets to save on taxes? Makes zero sense.
I'm more interested in this phenomena with hedge funds treating short term cap gains as long term.
I think what GP means is, your fund has some trading profits, which if an individual did the same trades would be taxed as earned income or short term gains, but the fund actually doesn't have profits or pay taxes at all - it's a pass through entity. You, as an individual investor in the fund, pay taxes (long term or short term cap gains as appropriate) when you exit your investment in the fund.
This is a pretty reasonable way for capital gains taxes to work. The secret sauce successful hedge funds have is not access to this tax optimization, but some way to actually generate those trading profits in the first place.
This way you get to post a net loss.
Tax are due on capital gains which is basically <sale price> minus <purchase price>.
You can't claim a capital loss unless you paid the overvalued price. And then you just lost money anyways.
https://www.investopedia.com/terms/t/taxgainlossharvesting.a...
It is literally a thing. I cannot for the life of me make sense of how to make it work that doesn't strike me as off, but enough people get utility out of the moniker that it's got a page. So...
Tax loss harvesting is real, you just time when you take a loss to offset a gain. Then immediately reinvest. You haven’t lost any money in total, you can just claim the loss on your taxes (but will pay higher capital gains in the future).
You don’t pay taxes on inheritance.