Finance Maxxing
Capital Gains & Investments
Tax-Loss Harvesting
Selling investments at a loss to offset gains.
Tax-loss harvesting involves selling investments at a loss to offset capital gains and up to $3,000 of ordinary income.
How It Works
- Identify positions with unrealized losses
- Sell the losing position to realize the loss
- Reinvest in a similar (but not "substantially identical") asset
- Claim the loss on your tax return
Example
| Without Harvesting | With Harvesting | |
|---|---|---|
| LTCG realized | $50,000 | $50,000 |
| Loss harvested | — | ($20,000) |
| Net taxable gain | $50,000 | $30,000 |
| Tax saved (at 23.8%) | — | $4,760 |
Wash Sale Warning
You cannot repurchase the same or "substantially identical" security within 30 days before or after the sale. Safe alternatives:
- Different index fund tracking similar market (e.g., swap Vanguard S&P 500 for iShares S&P 500)
- Different asset class (e.g., swap individual stock for sector ETF)
- Wait 31 days and repurchase
Sources
Related Terms
More in Capital Gains & Investments
Long-Term Capital Gains (LTCG)
Gains on assets held over one year, taxed at preferential rates.
Short-Term Capital Gains (STCG)
Gains on assets held one year or less, taxed as ordinary income.
Holding Period
How long you held an asset — determines LTCG vs. STCG.
Net Investment Income Tax (NIIT)
3.8% surtax on investment income for high earners.
Cost Basis
Original purchase price used to calculate gain or loss.
Capital Loss Deduction
Losses offset gains; up to $3,000/yr against ordinary income.
Wash Sale Rule
Disallows loss if you repurchase same security within 30 days.
Qualified Dividends
Dividends taxed at LTCG rates instead of ordinary rates.
Stepped-Up Basis
Inherited assets reset cost basis to date-of-death value.