Tax-loss harvesting means selling investments at a loss to offset taxable gains elsewhere in your portfolio.
How it works
Capital losses first offset capital gains of the same type, then the other type. If losses exceed gains, up to $3,000 can offset ordinary income each year, with the remainder carried forward indefinitely.
The wash sale rule
If you buy the same or a substantially identical security within 30 days before or after the sale, the loss is disallowed. To stay invested, swap into a similar but not identical fund, such as a different index provider.
When it is worth it
Harvesting applies to taxable accounts only. It defers rather than eliminates tax by lowering your cost basis, but deferral still has value and can be powerful if you eventually donate shares or hold them until death. Do not let tax tail wag the investment dog.
Try the numbers
Use our Capital Gains Tax Calculator to see this in practice. With its default example (Capital gain: $40,000; Other taxable income: $90,000; Filing status: Single), it shows long-term capital gains tax: $6,000. Adjust the inputs to match your situation.
Key takeaways
- Losses offset gains and up to $3,000 of income.
- Avoid repurchasing the same security within 30 days.
- It applies only to taxable accounts.
This article is for general education and is not personalized financial, tax or legal advice. Rules and limits change; confirm current figures with official sources such as IRS.gov, SSA.gov and StudentAid.gov, or consult a qualified professional. © 2026 FinanzCalc.