Tax-Loss Harvesting
Selling investments at a loss to offset capital gains taxes on other investments.
Definition
Tax-loss harvesting is a tax optimization strategy that involves selling investments that have declined in value to realize a capital loss, which can then be used to offset capital gains from other investments. If capital losses exceed capital gains, up to $3,000 of the excess can be deducted against ordinary income annually, with remaining losses carried forward to future years. The wash-sale rule prohibits repurchasing the same or "substantially identical" security within 30 days before or after the sale. Many robo-advisors automate tax-loss harvesting. This strategy is most beneficial for high-income investors in taxable accounts and can save thousands in taxes annually without significantly altering portfolio allocation.
Related Terms
Capital Gains
The profit realized from selling an asset for more than its purchase price.
InvestingPortfolio
A collection of financial investments like stocks, bonds, cash, and other assets held by an individual or institution.
TradingRisk Management
The process of identifying, assessing, and controlling threats to an investment portfolio.