Investment
Tax-Loss Harvesting: How It Saves You $5,000-$50,000 in 2026
Tax-loss harvesting is the practice of selling investments at a loss to offset capital gains and reduce your tax bill. Losses first offset gains of the same type (short-term losses offset short-term gains, long-term losses offset long-term gains), then cross-offset the other type, and finally up to $3,000 of remaining losses can offset ordinary income. Excess losses carry forward indefinitely. You can immediately reinvest in a similar (but not substantially identical) investment to maintain your market exposure.
Who Qualifies
- Have taxable investment accounts with unrealized losses
- Realized capital gains from stock sales, RSU dispositions, or fund distributions
- High earners who benefit from the $3,000 ordinary income offset at their marginal rate
Who does NOT qualify
- Only hold investments in tax-advantaged accounts (401(k), IRA), losses in these accounts don't generate tax benefits
- No unrealized losses in taxable accounts
How the Math Works
Sell the losing positions to realize $45K in losses. $45K offsets $45K of the $60K capital gain. Remaining $15K gain taxed at long-term capital gains rate (20% + 3.8% NIIT).
Without harvesting: $60K × 23.8% = $14,280 in tax. With harvesting: $15K × 23.8% = $3,570. Savings: $10,710. Reinvest in similar ETFs to maintain market exposure.
Legal Basis & IRC Citations
- IRC §1091: Wash sale rule (30-day rule for substantially identical securities)
- IRC §1211(b): Limitation on capital losses ($3,000 ordinary income offset)
- IRC §1212: Capital loss carryover rules
What to Tell Your CPA
“I've realized capital gains of $[amount] this year from [RSU sales/stock sales]. I also have unrealized losses in my taxable brokerage account. I'd like to harvest losses to offset the gains. Can you confirm the wash sale window and help me identify the optimal lots to sell?”
Calculate your exact savings in 5 minutes
See my savings estimate →50+ strategies analyzed · CPA-verified · 2026 tax law including OBBBA
Frequently Asked Questions
What is the wash sale rule?
You cannot claim a loss if you buy a "substantially identical" security within 30 days before or after the sale (61-day window total). Buy a different ETF tracking a different index, or wait 31 days to repurchase. The wash sale rule also applies across accounts, including your spouse's accounts and IRAs.
Can I tax-loss harvest in a down market?
Down markets are the best time to harvest losses. Sell losing positions, immediately buy similar (not identical) funds, and bank the tax losses. You maintain market exposure while generating deductions. If markets recover, you benefit from both the rebound and the tax savings.
Is there a limit to how much I can harvest?
No limit on total losses harvested. However, losses can only offset capital gains dollar-for-dollar plus $3,000 of ordinary income per year. Excess losses carry forward indefinitely to future tax years.
Related Strategies
Popular with: