Tax-Loss Harvesting.

In plain English

Tax-loss harvesting is the practice of selling an investment that is worth less than you paid for it, on purpose, so you can record a capital loss. That loss can offset capital gains from other investments you sold at a profit, and if your losses are larger than your gains, you can use a limited amount to offset ordinary income and carry the rest to future years. People often reinvest the proceeds into a similar but not identical investment so they stay in the market. The catch is the wash sale rule, which blocks the loss if you rebuy the same security too soon.

01Why it matters

Used carefully, it can shrink your tax bill in a year when some holdings dropped, turning a paper loss into a real reduction in what you owe the IRS.

02The math, step by step

You sold a stock for a $3,000 gain. You also hold a fund that is down $3,000. You sell the fund to harvest the loss, which cancels out your $3,000 gain, so you owe no capital gains tax on that trade. If your losses outrun your gains, the IRS lets you deduct the lesser of $3,000 ($1,500 if married filing separately) or your net loss against ordinary income each year (as of the 2026 tax year), and carry any remaining loss to future years.

03What this is NOT

04Receipts

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