Tax Loss Harvesting

Harvesting turns a paper loss into a tax asset without leaving the market: sell the losing position, immediately buy something similar but not substantially identical, and the realized loss enters the IRS netting waterfall, gains of the same character first, then the other character, then $3,000 of ordinary income, with the rest carried forward. Short-term losses are the more valuable harvest because they first cancel gains taxed at ordinary rates.

Be honest about what it is: mostly deferral. The replacement shares carry the lower purchase price as basis, so a future sale reaps a larger gain; the profit comes from the time value of the postponed tax, the annual $3,000 income deduction, and the chance the future gain lands at a lower rate or a stepped-up basis. The wash-sale rule polices the maneuver’s 61-day window. Price a specific harvest in the tax loss harvesting calculator.