Tax-Loss Harvesting
Selling investments at a loss to offset capital gains and reduce tax owed.
Tax-loss harvesting is a strategy in which an investor deliberately sells assets that have fallen in value to realize a capital loss. That loss can then be used to offset capital gains realized elsewhere in the portfolio — and, in some countries, a limited amount of ordinary income — lowering the overall tax bill. Investors must watch for "wash sale" rules that disallow the loss if a substantially identical asset is repurchased within a set window.
Examples
- A US investor offsets $10,000 of stock gains by selling a losing position before year-end.
- Up to $3,000 of net capital losses can offset ordinary income annually in the US, with the remainder carried forward.