Tax-Loss Harvesting
Realizing losses to offset gains and up to $3,000 of ordinary income.
What is Tax-Loss Harvesting?
Selling losers to bank losses that offset realized gains, with up to $3,000 of excess deductible against ordinary income per year and the remainder carried forward indefinitely. Maintain exposure with a similar but not substantially identical holding to avoid a wash sale.
Tax-Loss Harvesting: a worked example
$20,000 of gains against $12,000 of harvested losses leaves $8,000 taxable.
More terms in Taxes & Account Types
Capital Gain (Short-Term vs. Long-Term)
Profit on a sale, taxed by how long you held it.
Cost Basis
What you paid, used to compute gain or loss on sale.
Wash Sale Rule
A loss is disallowed if you rebuy the same security within 30 days.
Qualified Dividend
A dividend taxed at long-term capital gains rates.
Traditional IRA / 401(k)
Deduct now, grow tax-deferred, pay ordinary income tax on withdrawal.
Roth IRA / Roth 401(k)
Pay tax now, grow tax-free, qualified withdrawals are untaxed.
Required Minimum Distribution (RMD)
Mandatory annual withdrawals from tax-deferred accounts starting at 73.
Step-Up in Basis
Inherited assets reset to market value at the date of death.