Harvest losses before December 31st to reduce current year taxes Avoid wash sale violations by waiting 31 days before repurchasing Offset gains first, then up to $3,000 of ordinary income annually Maintain portfolio allocation with similar but different replacement securities

Curated by: Rubric Advisors

Tax Planning

Tax-Loss Harvesting: A Complete Guide

Tax-loss harvesting allows investors to strategically sell losing investments to offset taxable gains and reduce tax liability while maintaining their desired portfolio allocation. This powerful strategy requires careful attention to IRS wash sale rules and proper implementation timing.

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What Is Tax-Loss Harvesting

A strategy to sell investments at a loss to offset taxable gains in the same year
Reduces current year tax liability while maintaining overall portfolio allocation
Available to all investors in taxable accounts, not applicable to retirement accounts
Must follow strict IRS wash sale rules to preserve the tax benefit

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What Is Tax-Loss Harvesting

A strategy to sell investments at a loss to offset taxable gains in the same year
Reduces current year tax liability while maintaining overall portfolio allocation
Available to all investors in taxable accounts, not applicable to retirement accounts
Must follow strict IRS wash sale rules to preserve the tax benefit

How Tax-Loss Harvesting Works

Sell losing investments to realize capital losses before December 31st
Use losses to offset capital gains dollar-for-dollar in the same tax year
Excess losses offset up to $3,000 of ordinary income annually
Remaining losses carry forward indefinitely to future tax years
Reinvest proceeds in similar but not identical securities to stay invested

Wash Sale Rules

Cannot repurchase the same or substantially identical security within 30 days
The 30-day window includes 30 days before and 30 days after the sale date
Violations disallow the tax loss and add the disallowed amount to the new cost basis
The rule applies across spouse's accounts and retirement accounts you control

Substantially Identical Securities

Same company stock or bonds from the same issuer are always considered identical
Different share classes of the same company are typically considered identical
ETFs tracking the same index are usually identical; different indexes generally are not
Sector ETFs and broad market funds are generally not considered identical

Short-Term vs Long-Term Losses

Short-term losses (held one year or less) offset short-term gains first
Long-term losses (held over one year) offset long-term gains first
Excess losses then offset the opposite type of gains after same-type matching
Long-term capital gains receive preferential tax rates (0%, 15%, or 20%)

Implementation Best Practices

Review your portfolio for harvesting opportunities quarterly, especially before year-end
Maintain asset allocation by purchasing similar but different replacement securities
Track cost basis carefully and use the specific identification method
Harvest losses in taxable accounts while keeping winners in retirement accounts

Key Takeaways

Harvest losses before December 31st to reduce current year taxes
Avoid wash sale violations by waiting 31 days before repurchasing
Offset gains first, then up to $3,000 of ordinary income annually
Maintain portfolio allocation with similar but different replacement securities

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The information above is for educational purposes only and does not constitute investment advice, a recommendation, or a solicitation to buy or sell any security. Any historical figures are for illustration only, and past performance does not guarantee future results. Tax laws, regulations, and contribution limits change frequently, the details here may become outdated. Individual circumstances vary. Consult a qualified financial advisor, CPA, or attorney for guidance specific to your situation. Rubric Advisors is registered with the California DFPI; registration does not imply a certain level of skill or training.

Tax-Loss Harvesting: A Complete Guide

What Is Tax-Loss Harvesting

How Tax-Loss Harvesting Works

Wash Sale Rules

Substantially Identical Securities

Short-Term vs Long-Term Losses

Implementation Best Practices

Key Takeaways

What Is Tax-Loss Harvesting

How Tax-Loss Harvesting Works

Wash Sale Rules

Substantially Identical Securities

Short-Term vs Long-Term Losses

Implementation Best Practices

Key Takeaways

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Tax-Loss Harvesting: A Complete Guide

What Is Tax-Loss Harvesting

How Tax-Loss Harvesting Works

Wash Sale Rules

Substantially Identical Securities

Short-Term vs Long-Term Losses

Implementation Best Practices

Key Takeaways

What Is Tax-Loss Harvesting

How Tax-Loss Harvesting Works

Wash Sale Rules

Substantially Identical Securities

Short-Term vs Long-Term Losses

Implementation Best Practices

Key Takeaways

Related Topics

Year-Round Tax Planning

Selling Rental Property: Tax Playbook

Tax Alpha: How Tax Management Adds Returns