The simple version

Charles Schwab has put new margin restrictions on clients using long-short tax-loss harvesting strategies, a tactic that now accounts for roughly $1.8 trillion in assets under management. If you are one of those clients, you may now be required to post more collateral, or face a margin call that forces you to sell positions whether you want to or not.

This matters to your account because margin calls do not wait for a good time to sell. When a broker determines you do not have enough equity to support your borrowed position, they can liquidate your holdings immediately, often at the worst price of the week. The tax savings the strategy was designed to produce can evaporate in one forced trade.

The numbers

• 25%: the minimum maintenance margin requirement set by FINRA rules, meaning your equity cannot fall below 25% of the total market value of the securities in a margin account (SEC, sec.gov)
• 30% to 40%: the higher house maintenance margin requirements many brokers, including Schwab, set above the regulatory floor, which is what tightening rules typically means in practice (SEC, sec.gov)
• $0: what the IRS allows you to deduct from a wash-sale loss if you repurchase a substantially identical security within 30 days before or after the sale, the rule long-short strategies are specifically designed to sidestep (IRS, irs.gov)
• Short-term capital gains are taxed at ordinary income rates, up to 37% federally for the highest bracket in 2026, which is why harvesting losses to offset those gains is so attractive to high-income investors (IRS, irs.gov)

What long-short tax-loss harvesting actually does

A standard tax-loss harvest is simple: you sell a position that has lost value, realize the loss, and use that loss to offset gains elsewhere in your portfolio. The problem is the wash-sale rule. If you sell a stock and buy back the same stock within 30 days, the IRS disallows the loss. So you cannot just sell Apple, book the loss, and immediately buy Apple back.

Long-short strategies try to solve that problem with leverage. Instead of selling and waiting, you short the stock you just sold (or a correlated one) so you maintain market exposure while the 30-day wash-sale clock runs out. You are simultaneously long one position and short a related one. The idea is to stay in the market and still lock in the tax loss.

That short position is held on margin. Margin means borrowed money. Borrowed money means a maintenance requirement. If the shorted stock rises sharply, your short position loses money, your equity cushion shrinks, and the broker steps in with a margin call. You now have to deposit more cash or the broker sells your holdings to bring the account back into compliance.

Schwab tightening its house margin requirements means the equity cushion it demands from clients running these trades just got larger. Clients who were previously operating close to the line may now need to put up more cash or unwind positions. For a strategy built around deferring taxes, being forced to realize gains to cover a margin call is the opposite of the plan.

The Real Cost lens on a $100,000 long-short position

Here is a concrete example of what margin call mechanics cost a real account. Assume you hold a $100,000 long position and a corresponding $100,000 short position as part of a tax-management strategy. Schwab raises its house maintenance requirement from 30% to 40% on the short side.

• Old requirement: 30% of $100,000 short = $30,000 equity required as collateral
• New requirement: 40% of $100,000 short = $40,000 equity required as collateral
• Gap created by the tightening: $10,000 you now need to deposit or raise by selling something
• If you sell a position to cover and that position has a $10,000 embedded gain, you just triggered a taxable event. At a 37% federal rate, that is $3,700 in taxes owed, paid immediately, to maintain a strategy designed to defer taxes.

The math is not hypothetical. Every margin call forces a decision: deposit cash you may not have liquid, or sell something you did not want to sell, at a price and time chosen by the broker. In volatile markets, that forced sale often happens at the low. The tax-efficiency the strategy promised can be fully offset by the cost of meeting the call.

What this means

Schwab's move signals that brokers are taking a closer look at how much risk sits inside these tax-management trades. When $1.8 trillion in assets is running a correlated strategy and markets get choppy, forced selling can cascade. One margin call triggers a sale; that sale moves the price; the price movement triggers another margin call elsewhere. Brokers raising their house requirements is one way the industry tries to build a buffer before that sequence starts.

For most readers, the practical takeaway is simpler. If someone is pitching you a tax strategy that involves a margin account, ask what happens to your account specifically if you get a margin call. Get the answer in writing before you sign anything. The tax savings shown in the pitch deck assume the trade works as designed. Margin calls are what happen when it does not.

What this is NOT

This is not a prediction of whether Schwab, or any other broker, will raise or lower margin requirements further. This is not advice on whether a long-short tax strategy is appropriate for your account or tax situation. This is not a recommendation to open, close, or modify any margin account or brokerage relationship. This is not a judgment on whether tax-loss harvesting is legal, ethical, or worth pursuing. This is not a buy or sell signal on Charles Schwab stock (SCHW) or any other security.

Sources

• SEC, Margin: Borrowing Money to Pay for Stocks: https://www.sec.gov
• IRS, Topic No. 409, Capital Gains and Losses: https://www.irs.gov
• IRS, Publication 550, Investment Income and Expenses (Wash Sale Rules): https://www.irs.gov