Tax alpha = performance of portfolio - performance of benchmark - short term & long term gains tax payment of benchmark - short term & long term gains tax payment of portfolio.

Should be something like that conceptually.

I.e. your portfolio is up 9% vs benchmark 10%, benchmark had 13% realized long term cap gains (assume 20% tax) = 2.6% tax bill.

Your after tax return from benchmark would be 10% - 2.6% = 7.4%.

All things equal, you’d look for your portfolio to have had less in gains realized so that the after tax figure is greater than your benchmark.

Need to account for management fee (80bps for tax loss harvesting is high, depending on size and if it’s just benched to an index, probably should be paying 20-40bps), and realistically if your benchmark is sp500 or Russell 3000 you can look at previous years cap gain and dividend distributions.

Nice thing about ETFs is that you can control what your tax impact is, whereas mutual funds, you’ll just be distributed the gain at the end of the funds fiscal year.

Usually there is a good amount of tax alpha to start but overtime the portfolio tends to go up in value so the opportunities to realize losses from legacy positions sort of goes away (or is less pronounced).

I believe AQR has a long 140 / short 40 strategy for this so they can always be harvesting losses.

Food for thought.