How does tax loss harvesting actually save money?

A realized loss cancels realized gains dollar for dollar, and up to $3,000 of leftover loss deducts against ordinary income each year. A $10,000 loss against $4,000 of short-term gains (at 24 percent) and $6,000 of long-term gains (at 15 percent) saves $1,860 this year. The saving is a deferral if you stay invested, since your new basis is lower.

What triggers the wash-sale rule?

Buying the same or a substantially identical security within 30 days before or after the loss sale, 61 days of exposure in total. It counts automatic purchases like dividend reinvestment and 401(k) contributions, your spouse's accounts, and your IRA, where the loss is permanently destroyed rather than deferred (Rev. Rul. 2008-5).

Can I buy a similar fund right away instead of waiting 30 days?

Yes, that is the standard maneuver: sell the loser and immediately buy a fund that is similar but not substantially identical, such as a different index covering the same market segment. You keep market exposure while the loss stands. Two funds tracking the identical index are the gray zone most practitioners avoid.

Why do short-term losses save more than long-term losses?

Because of the netting order: a short-term loss first cancels short-term gains, which are taxed at your ordinary bracket (up to 37 percent), while a long-term loss first cancels long-term gains taxed at 0 to 20 percent. Same dollar of loss, different rate displaced. When you have a choice of lots, harvesting the short-term one usually saves more.

What happens to losses I cannot use this year?

They carry forward indefinitely, keeping their character, and repeat the same waterfall every year: gains first, then $3,000 of income. Large harvested losses from a bad market year commonly shelter gains for years afterward, which is why the carryforward line on Schedule D is worth tracking.

Tax Loss Harvesting Calculator

Price a harvested loss: gains offset in the IRS netting order, the $3,000 ordinary-income deduction, the carryforward, and a wash-sale window check.

Loss you can harvest

Holding period of the loss

Short-term gains this year

Long-term gains this year

Marginal ordinary rate

Long-term capital gains rate

Days to nearest same-security purchase

days

X f in

Tax saved this year

$1,860.00

Offsets short-term gains: $4,000.00
Offsets long-term gains: $6,000.00
Deducts against ordinary income: $0.00
Carries forward to next year: $0.00
Wash-sale check: No wash sale at 31 days between the sale and your nearest purchase of the same security: the loss counts. The window is 30 days on BOTH sides of the sale, and it covers purchases in IRAs and a spouse's accounts too.

Quick answer: With the example inputs this page loads by default, the headline result (Tax saved this year) comes to $1,860.00. Price a harvested loss: gains offset in the IRS netting order, the $3,000 ordinary-income deduction, the carryforward, and a wash-sale window check. Change any input above and every figure updates instantly in your browser.

Figures shown are for the 2026 tax year. The calculator always applies the current year's figures.

Your inputs never leave your browser, and nothing is stored. See our privacy policy .

Fact-check: results on this page are verified against an independently coded reference oracle that covers all 106 calculators on this site. See how we verify .

Tax loss harvesting sells a losing investment to offset taxable gains: losses net against gains of the same character first, then the other, then up to $3,000 of ordinary income per year, with the rest carried forward indefinitely. The catch is the wash-sale rule: rebuy the same security within 30 days and the loss is disallowed. This calculator prices your loss and checks the window.

What this result means

The savings figure is real money but the mechanics matter: a short-term loss is worth more per dollar because it first offsets short-term gains taxed at your ordinary rate, and harvesting only defers tax when you stay invested, since the replacement shares carry a lower basis that enlarges a future gain. The wash-sale window runs 30 days on both sides of the sale and reaches into IRAs and spousal accounts, where a violation permanently destroys the loss instead of deferring it. The standard play is swapping into a similar-but-not-identical fund so market exposure never lapses. Not tax advice.

Assumptions

Losses net in the statutory order (IRC 1211): against gains of the same character first (short with short, long with long), then the other character, then up to $3,000 per year against ordinary income, with any remainder carried forward indefinitely (IRC 1212). The $1,500 cap for married filing separately is not modeled.
Savings price each offset at the rate it displaces: your ordinary rate for short-term gains and the income deduction, your long-term rate for long-term gains. State tax savings add on top and are not modeled.
The wash-sale rule (IRC 1091) disallows the loss when you buy the same or a substantially identical security within 30 days before OR after the sale, including purchases by your spouse or inside your IRA (where the basis addition is lost permanently, per Rev. Rul. 2008-5). A violation here zeroes the year's savings; in reality the disallowed loss is added to the replacement shares' basis, deferring rather than destroying it, except in the IRA case.
The single-position model assumes the loss and gains are the year's complete capital picture; multiple lots, mutual fund distributions, and the netting of multiple losses are not modeled.
This is an estimate for educational purposes only, not tax advice. 'Substantially identical' is a facts-and-circumstances judgment the IRS has never bright-lined; identical funds tracking the same index are the risky zone.

Key terms

Definitions for the terms this calculator uses, in our finance glossary .

How it works

Two statutes do all the work.

The netting waterfall (IRC 1211/1212). A realized loss first cancels realized gains of the same character (short-term with short-term, long-term with long-term), then spills into the other character, then deducts up to $3,000 a year against ordinary income, and whatever remains carries forward indefinitely with its character intact. The calculator prices each step at the rate it displaces: your ordinary bracket for short-term gains and the income deduction, your long-term rate for long-term gains. That rate difference is why a short-term loss saves more per dollar.

The wash-sale gate (IRC 1091). Buying the same or a substantially identical security within 30 days before or after the loss sale disallows the loss, folding it into the replacement shares’ basis instead (deferred, not destroyed), except inside an IRA, where Rev. Rul. 2008-5 makes the loss permanently disappear. The calculator checks your entered repurchase timing and zeroes the year’s savings on a violation.

Worked example

A $10,000 short-term loss, $4,000 of short-term gains, $6,000 of long-term gains, a 24 percent bracket, a 15 percent long-term rate, repurchase 31 days out.

Nets $4,000 of short-term gains: saves 24% = $960.
Nets $6,000 of long-term gains: saves 15% = $900.
Total saved this year: $1,860, no carryforward.

Grow the loss to $20,000 and $3,000 more deducts against income ($720 at 24 percent) with $7,000 carrying forward: $2,580 saved now.

Scope and limitations

One loss position against the year’s total gains; multiple lots, fund distributions, and state taxes are not modeled, nor is the $1,500 married-filing-separately cap. Harvesting while staying invested lowers your replacement basis, so much of the saving is deferral rather than cancellation, worth it for the time value and the chance of a lower future rate or a step-up. “Substantially identical” has no bright-line IRS definition. This is an estimate for education, not tax advice.

Sources

Frequently asked questions

How does tax loss harvesting actually save money?: A realized loss cancels realized gains dollar for dollar, and up to $3,000 of leftover loss deducts against ordinary income each year. A $10,000 loss against $4,000 of short-term gains (at 24 percent) and $6,000 of long-term gains (at 15 percent) saves $1,860 this year. The saving is a deferral if you stay invested, since your new basis is lower.
What triggers the wash-sale rule?: Buying the same or a substantially identical security within 30 days before or after the loss sale, 61 days of exposure in total. It counts automatic purchases like dividend reinvestment and 401(k) contributions, your spouse's accounts, and your IRA, where the loss is permanently destroyed rather than deferred (Rev. Rul. 2008-5).
Can I buy a similar fund right away instead of waiting 30 days?: Yes, that is the standard maneuver: sell the loser and immediately buy a fund that is similar but not substantially identical, such as a different index covering the same market segment. You keep market exposure while the loss stands. Two funds tracking the identical index are the gray zone most practitioners avoid.
Why do short-term losses save more than long-term losses?: Because of the netting order: a short-term loss first cancels short-term gains, which are taxed at your ordinary bracket (up to 37 percent), while a long-term loss first cancels long-term gains taxed at 0 to 20 percent. Same dollar of loss, different rate displaced. When you have a choice of lots, harvesting the short-term one usually saves more.
What happens to losses I cannot use this year?: They carry forward indefinitely, keeping their character, and repeat the same waterfall every year: gains first, then $3,000 of income. Large harvested losses from a bad market year commonly shelter gains for years afterward, which is why the carryforward line on Schedule D is worth tracking.

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By Sam Sage Last reviewed July 2026.