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Tax-Loss Harvesting
What is Tax-Loss Harvesting?
Tax-loss harvesting is the strategy of selling investments at a loss to offset gains from other investments, reducing taxable income.
In Plain Language:
It’s using investment losses to lower your tax bill—turning a negative into a tax advantage.
Key Details:
- Offsets capital gains dollar-for-dollar.
- Up to $3,000 of losses can offset ordinary income annually (with excess carried forward).
- Commonly used in taxable brokerage accounts.
- Subject to the IRS wash-sale rule, which prevents buying the same security back within 30 days.
Why It Matters:
Smart tax-loss harvesting can save thousands over time, helping you keep more of your returns.
Example: An investor sells a stock at a $5,000 loss to offset $5,000 in capital gains from another investment, reducing their taxable income.
Related Terms:
