Tax-Loss Harvesting

What Is Tax-Loss Harvesting?

Tax-loss harvesting is an investment strategy that involves selling securities at a loss to offset capital gains realized elsewhere in your portfolio, thereby reducing your tax liability for the year. The realized losses can also offset up to $3,000 of ordinary income annually in the US, with excess losses carried forward to future years.

How It Works

• You sell an investment that has declined in value, realizing a capital loss.
• The loss offsets capital gains from other sold positions.
• You then reinvest the proceeds in a similar (but not identical) asset to maintain market exposure.

The Wash-Sale Rule

In the US, the IRS prohibits claiming a loss if you buy a "substantially identical" security within 30 days before or after the sale. This is the wash-sale rule. Investors must buy a similar but different security to maintain exposure without violating the rule.

When It Makes Sense

Tax-loss harvesting is most valuable in high-tax situations, during volatile market periods, and when you have significant capital gains to offset. It is a deferral strategy — you reduce taxes today by lowering your cost basis in the replacement asset.

Tax-Loss Harvesting on BlackSpecter

BlackSpecter flags positions with unrealized losses in your portfolio that may be candidates for tax-loss harvesting before year-end.

Disclaimer: This content is for educational purposes only and does not constitute financial advice.