Tax-Loss Harvesting

Personal Finance

Tax-loss harvesting is the practice of selling investments at a loss to offset capital gains and reduce taxes — then reinvesting the proceeds in a similar (but not identical) asset to maintain exposure. Up to $3,000 of excess losses can offset ordinary income annually; unlimited losses can offset capital gains. The wash-sale rule disallows the loss if you buy substantially identical securities within 30 days before or after the sale. Sophisticated investors automate harvesting through robo-advisors and direct indexing. The strategy doesn't make money — it shifts taxes from this year to the future — but the deferral itself is valuable.