Tax-Loss Harvesting
Make losses pay tax savings.
How it works
In your TAXABLE brokerage account, sell investments that LOST value. Use the loss to offset capital gains, OR up to $3,000/year against ordinary income. Buy similar (NOT identical) investment to maintain market exposure.
Example
- You sold a stock 2024 for $20K profit (gain).
- Another stock down 20% — $5K loss on paper.
- Sell losing stock → realize $5K loss.
- $20K gain - $5K loss = $15K taxable gain.
- Save 15-25% × $5K = $750-1,250 in taxes.
- Buy similar (NOT exact same) stock.
Wash sale rule
- Can't buy SAME stock within 30 days BEFORE or AFTER sale (60-day window total).
- Disallowed sale loss.
- Solutions:
- Buy SIMILAR (S&P 500 fund → total market fund).
- Wait 31 days to buy back.
- Auto-investments must be turned off in window.
When it works
- You have TAXABLE brokerage (NOT IRA / 401k).
- Some investments have unrealized losses.
- You have either: capital gains to offset, OR working income.
- Best done DECEMBER for tax year.
- Not worth it on small accounts (under $50K typically).
Auto-harvest services
- Wealthfront / Betterment — robo-advisors auto-harvest. 0.25% fee.
- Fidelity / Schwab tax-loss harvesting — included in some advisor services.
- DIY — once a year, December review.
- Most helpful for accounts $100K+.
Don't let tail wag dog
Don't sell winners just to "harvest" — pays bigger taxes. Don't buy crappy investments just because they fit harvesting plan. Tax savings should follow good investing — not drive it.