How much can I save with tax loss harvesting?

It depends on your tax bracket and the size of the losses you harvest. If you are in the 15% long-term capital gains bracket and harvest $10,000 in losses, you save roughly $1,500 in capital gains tax. If those losses offset short-term gains and you are in the 32% bracket, the savings jump to $3,200. When losses exceed gains, you can deduct up to $3,000 per year against ordinary income — that could save you another $720 to $1,110 depending on your bracket. Any leftover losses carry forward indefinitely, so the savings keep compounding in future years.

What is the wash sale rule and how does it affect tax loss harvesting?

The wash sale rule under IRS Section 1091 disallows your tax loss if you buy the same or substantially identical security within 30 days before or after selling it. That creates a 61-day restricted window around the sale date. The rule applies across all your accounts — taxable brokerage, IRA, and even your spouse's accounts. To avoid it, wait at least 31 days before buying back the same security, or switch to a similar but not substantially identical replacement investment right away.

Does tax loss harvesting work for cryptocurrency?

Absolutely. The IRS treats cryptocurrency as property, so the same capital gains and loss rules that apply to stocks also apply to crypto. You can sell Bitcoin at a loss to offset gains from Ethereum, stocks, or any other capital asset. One big advantage: the wash sale rule currently does not apply to cryptocurrency because crypto is classified as property rather than a security. That means you can sell Bitcoin at a loss and buy it right back without triggering a wash sale. However, proposed legislation could change this, so stay alert for updates.

What is the $3,000 capital loss deduction limit?

The $3,000 limit ($1,500 if married filing separately) is the maximum amount of net capital losses you can deduct against ordinary income in a single tax year. This limit has been stuck at $3,000 since 1978 — it has never been adjusted for inflation. The limit only applies to losses deducted against ordinary income. There is no cap on how much you can use to offset capital gains. So if you have $100,000 in gains and $100,000 in losses, the entire gain is offset with no limit. The $3,000 cap only kicks in when losses exceed gains.

When is the best time to do tax loss harvesting?

Most investors focus on November and December when they have a clear picture of their gains and losses for the year. But the most effective approach is continuous harvesting throughout the year — selling losing positions as soon as they drop far enough to generate meaningful tax savings. Market downturns are the best harvesting opportunities because many positions may be underwater at the same time. The key is having a system: set a threshold (say, 10% loss), monitor regularly, and harvest when triggered.

Is tax loss harvesting worth it for small losses?

For losses under a few hundred dollars, the tax savings may not justify the effort and trading costs. But if you are already planning to rebalance your portfolio or sell an underperforming investment, harvesting the loss while you are at it is almost always worthwhile. The math is simple: if you are in the 15% capital gains bracket, a $1,000 harvested loss saves you $150. That is $150 you keep instead of sending to the IRS, and it takes about five minutes to execute the trade.

Can I harvest losses in my IRA or 401(k)?

No. Tax loss harvesting only works in taxable accounts. IRA and 401(k) accounts are tax-deferred, so you do not report gains or losses on individual transactions within those accounts. Selling at a loss inside an IRA provides no tax benefit because you never recognized the gain in the first place. However, the wash sale rule can still affect you across account types — if you sell a stock at a loss in your taxable account and buy the same stock in your IRA within 30 days, the loss in your taxable account gets disallowed.

What is the difference between short-term and long-term capital losses?

Short-term losses come from investments held for one year or less, and long-term losses come from those held for more than a year. The IRS requires you to net short-term gains against short-term losses first, and long-term gains against long-term losses first. If you end up with a net short-term loss and a net long-term gain (or vice versa), they then offset each other. Short-term losses are generally more valuable because they offset short-term gains that would otherwise be taxed at your ordinary income rate — up to 37% versus 20% for long-term gains.

How do I report harvested losses on my tax return?

Report each sale on Form 8949 with the date acquired, date sold, proceeds, cost basis, and resulting gain or loss. The totals flow to Schedule D, which nets your gains and losses, applies the $3,000 ordinary income deduction if applicable, and calculates any carry-forward amount. Your broker sends Form 1099-B with transaction details. Make sure your records match the 1099-B — mismatches can trigger IRS notices. Also account for any wash sale adjustments, which your broker should flag on the 1099-B itself.

Updated for Tax Year 2025-2026

Tax Loss Harvesting Calculator - Offset Capital Gains

Calculate how much you can save by selling losing investments to offset your capital gains. Free calculator with wash sale rule guidance and carry-forward loss tracking.

100% Free

Wash Sale Check

Carry-Forward Tracking

Tax Loss Harvesting Calculator

Calculate your tax savings from harvesting investment losses

Capital Gains

Total Capital Gains ($)

Total gains from all investments this year

Capital Losses

Total Capital Losses ($)

Losses from selling losing investments

Tax Filing Information

Filing Status

Annual Taxable Income ($)

Your income from other sources (excluding capital gains)

What Is Tax Loss Harvesting and Why Does It Matter?

Tax loss harvesting is one of the few legitimate ways to reduce your tax bill without changing your overall investment strategy. You sell losing investments to lock in a tax deduction, then reinvest the proceeds in something similar so you stay in the market. The IRS lets you use those losses to offset gains elsewhere in your portfolio — and if losses exceed gains, you can even deduct up to $3,000 against your salary and other ordinary income.

$1 : $1

Losses offset gains dollar-for-dollar

$3,000/yr

Deduct net losses against ordinary income

Unlimited

Excess losses carry forward indefinitely

The Core Idea Behind Tax Loss Harvesting

When you sell an investment for less than you paid for it, the IRS lets you use that loss to reduce your taxable capital gains. If you have $20,000 in gains from selling winning stocks and you harvest $15,000 in losses from selling losers, you only pay tax on the net $5,000 gain. The loss goes directly against the gain, dollar for dollar — no partial credit, no phase-outs, no income limits. It is one of the cleanest tax benefits in the entire code.

The strategy works across all types of capital assets: stocks, bonds, ETFs, mutual funds, cryptocurrency, and real estate. Individual investors, financial advisors, and institutional fund managers all use it. During market downturns, when many positions are underwater, the opportunity to harvest losses is especially large — and so is the potential tax savings.

How Dollar-for-Dollar Offsetting Works

The IRS nets your capital gains and losses before calculating your tax. Short-term losses first offset short-term gains (taxed at up to 37%), and long-term losses first offset long-term gains (taxed at up to 20%). If you have a net loss of one type and a net gain of the other, they then cross-offset. This ordering matters because offsetting short-term gains saves you more per dollar than offsetting long-term gains — sometimes nearly twice as much.

For example, harvesting $10,000 in short-term losses saves a 32% bracket investor $3,200. The same $10,000 in long-term losses offsetting long-term gains saves only $1,500 at the 15% rate. This is why experienced investors prioritize harvesting short-term losses whenever possible.

Beyond Gains: The $3,000 Ordinary Income Deduction

If your capital losses exceed your capital gains, you can deduct up to $3,000 per year ($1,500 if married filing separately) against your ordinary income — wages, salary, interest, the works. This is particularly valuable because ordinary income rates are higher than capital gains rates. A $3,000 deduction at the 32% bracket saves you $960. Whatever losses remain after that gets carried forward to future years with no expiration date.

Stay Invested While You Save

The whole point of tax loss harvesting is that you do not have to exit the market. After selling a losing position, you immediately reinvest the proceeds in a similar but not substantially identical asset. You maintain your market exposure, capture the tax deduction, and stay positioned for recovery. For example, sell a Vanguard S&P 500 ETF (VOO) at a loss and buy an iShares S&P 500 ETF (IVV) — same index, different provider, no wash sale.

How Tax Loss Harvesting Works: Step-by-Step

The process is straightforward, but the details matter. Here is exactly how to execute a tax loss harvest, from identifying the right positions to reporting them on your return.

Identify Losing Positions in Your Portfolio

Look through your taxable accounts for positions trading below your cost basis. Most brokerage platforms show unrealized gains and losses for each holding. Focus on losses large enough to generate meaningful tax savings — typically several hundred dollars or more. Pay attention to the holding period: losses on positions held one year or less (short-term) are more valuable than long-term losses because they offset higher-taxed gains.

Calculate the Tax Savings

Use our calculator above to estimate your savings based on your gains, losses, income, and filing status. The math is simple: multiply the harvested loss by your marginal tax rate on the type of gain it offsets. A $10,000 long-term loss offsetting a 15% bracket gain saves $1,500. A $10,000 short-term loss offsetting a 32% bracket gain saves $3,200. Always run the numbers before you trade.

Sell the Losing Investment

Execute the sale to realize the capital loss. This is where the wash sale rule comes into play — you cannot buy the same or substantially identical security within 30 days before or after the sale. Choose a replacement investment that is similar enough to maintain your portfolio strategy but different enough to avoid triggering a wash sale. For instance, sell one S&P 500 ETF and buy another from a different provider.

Reinvest the Proceeds Immediately

Do not sit in cash. Reinvest right away in your chosen replacement investment to maintain market exposure. Staying in cash during a market recovery can cost you far more than the tax benefit you captured. The goal is to keep your portfolio working while locking in the tax deduction.

Report on Your Tax Return

When you file, report each sale on Form 8949 with purchase date, sale date, proceeds, cost basis, and gain or loss. The totals carry to Schedule D, which nets everything, applies the $3,000 ordinary income deduction if applicable, and calculates any carry-forward. Your broker provides Form 1099-B with transaction details. Make sure your records match — mismatches trigger IRS notices.

Real-World Example

Without Harvesting

$3,000

tax on $20,000 long-term gain at 15%

With $15,000 Harvested Loss

$750

tax on net $5,000 gain at 15%

You save $2,250 in federal tax — and the remaining $15,000 loss is working for you on your return.

The Wash Sale Rule: The One Rule You Cannot Afford to Break

The wash sale rule is the biggest trap in tax loss harvesting. Violate it and your loss deduction vanishes. Understand it, and you can work around it without giving up your market exposure.

The 61-Day Wash Sale Window

30 Days Before

Sale Date

30 Days After

Cannot purchase substantially identical securities within this entire 61-day window

What the Wash Sale Rule Does

Under IRS Section 1091, if you sell a security at a loss and buy the same or substantially identical security within 30 days before or after the sale, the IRS disallows the loss deduction. The disallowed loss does not disappear forever — it gets added to the cost basis of your replacement shares, which defers the tax benefit until you sell the new shares in a non-wash transaction. The holding period of the original shares also carries over to the replacement.

The rule applies across all your accounts — taxable brokerage, IRA, Roth IRA, and even accounts at different brokerages. If you sell Apple at a loss in your Fidelity account and buy it back in your Schwab IRA within 30 days, the wash sale rule still disallows the loss. This cross-account application catches a lot of people off guard.

What Counts as “Substantially Identical”?

The IRS has never given a precise definition, but here is what tax professionals generally agree on. Shares of the same company in the same class are always substantially identical — selling Apple and buying Apple triggers the rule. Options and warrants on the same stock also count.

For ETFs and mutual funds, it gets murkier. Two different S&P 500 ETFs from different providers (like VOO and IVV) are generally not considered substantially identical because they are separate legal entities with different expense ratios and tracking methods. But two ETFs that track the exact same niche index might be riskier. When in doubt, pick a replacement with a different index or a broader market fund to stay safe.

Strategies for Avoiding Wash Sales

Swap to a different provider: Sell Vanguard S&P 500 (VOO), buy iShares S&P 500 (IVV) or Schwab S&P 500 (SWPPX)
Change the index: Sell a tech sector ETF, buy a broader growth ETF or total market fund
Wait 31 days: The simplest approach — sell, wait, then buy back the same security
Double up first: Buy additional shares, wait 31 days, then sell the original shares at a loss

Cross-Account Warning

The wash sale rule applies across every account you and your spouse control — taxable, IRA, Roth, HSA, and accounts at different brokerages. If you sell a stock at a loss in your taxable account and your spouse buys the same stock in their IRA within 30 days, the loss is disallowed. Coordinate across all accounts or the IRS will catch the mismatch when your 1099-B forms cross-reference.

Tax Loss Harvesting for Different Asset Types

The basic mechanics are the same across all asset types, but there are important differences in how the wash sale rule applies and what replacement options are available.

Stocks & ETFs

Wash sale rule applies fully. Swap between different ETFs tracking similar indexes to stay invested. Most flexibility for finding non-identical replacements.

Cryptocurrency

Wash sale rule currently does NOT apply to crypto. You can sell Bitcoin at a loss and buy it back immediately. Proposed legislation could change this.

Real Estate

1031 exchanges provide an alternative to harvesting losses. Depreciation recapture complicates the calculation. Visit our real estate calculator.

Tax Loss Harvesting Stocks and ETFs

Stocks and ETFs are the most common targets for tax loss harvesting because they are liquid, easy to trade, and have clear replacement options. The wash sale rule applies in full force. The key is having a ready list of substitute investments: if you sell a Vanguard total market ETF (VTI), you can buy a Schwab broad market ETF (SCHB) or an iShares core S&P 500 (IVV) as a replacement. These track different enough indexes to avoid the substantially identical test while maintaining nearly identical market exposure.

For individual stocks, the replacement options are narrower. If you sell Apple at a loss, you cannot buy Apple back within 30 days. You could buy a tech sector ETF instead, but that changes your exposure profile. For more details, visit our stock capital gains tax calculator.

Tax Loss Harvesting Cryptocurrency: A Unique Advantage

Crypto tax loss harvesting has one huge advantage over stocks: the wash sale rule currently does not apply to cryptocurrency. The IRS classifies crypto as property, not a security, so Section 1091 does not cover it. That means you can sell Bitcoin at a loss on Monday and buy it right back on Tuesday — the loss is fully deductible, no 30-day waiting period required.

This makes crypto harvesting extremely efficient. In a down market, you can harvest crypto losses repeatedly as the price bounces around, accumulating large loss deductions without ever leaving the market. However, proposed legislation in Congress could extend the wash sale rule to crypto, so this advantage may not last forever. For the full breakdown, check our crypto capital gains tax calculator.

How the $3,000 Capital Loss Deduction Works

When your losses exceed your gains, you get a bonus: you can deduct up to $3,000 of net capital losses against your ordinary income every year. The rest carries forward indefinitely.

The $3,000 Annual Limit Explained

If your total capital losses exceed your total capital gains, you can deduct up to $3,000 of the difference against ordinary income on your tax return. This limit has been $3,000 since 1978 and has never been adjusted for inflation — meaning it has lost more than 80% of its real value over the decades. Still, it is free money: at the 32% bracket, that $3,000 deduction saves you $960.

Married couples filing separately get $1,500 each. The limit only applies to the deduction against ordinary income — there is no cap on how much you can use to offset capital gains. So if you have $500,000 in losses and $500,000 in gains, the entire gain is wiped out regardless of the $3,000 limit.

Capital Loss Carry-Forward: No Expiration Date

Any losses that exceed your gains plus the $3,000 deduction carry forward to future tax years with no expiration. This is a permanent tax asset — it never goes away until you use it. Each year, carried-forward losses first offset any capital gains, then you get another $3,000 deduction against ordinary income, and the rest keeps carrying.

Say you harvest $50,000 in losses with no gains this year. You deduct $3,000 against ordinary income now and carry forward $47,000. Next year, if you have $10,000 in gains, those are fully offset by the carry-forward, you deduct another $3,000 against ordinary income, and carry forward the remaining $34,000. This pattern continues year after year until the losses are used up. Use our capital gains tax calculator to estimate your specific situation.

Loss Offset

No limit on losses used to offset capital gains. Dollar-for-dollar.

Income Deduction

$3,000/yr ($1,500 MFS) against ordinary income. No inflation adjustment since 1978.

Carry Forward

Indefinite carry-forward. No expiration date. Use it in future years.

Tax Loss Harvesting Strategies for 2026

The best harvesting strategy depends on your situation, but these approaches have proven effective for investors across income levels.

Continuous Harvesting

Do not wait until December. Monitor your portfolio year-round and harvest losses as they appear. Set a threshold — say, harvest any position that drops 10% or more from cost basis. Robo-advisors like Betterment and Wealthfront do this automatically with daily monitoring. The systematic approach removes emotion and captures losses at better price points than a year-end scramble.

Prioritize Short-Term Losses

Short-term losses offset short-term gains taxed at up to 37%. Long-term losses offset gains taxed at max 20%. When choosing which positions to harvest, prioritize those held one year or less. The IRS nets short-term and long-term separately first, so harvesting short-term losses provides the highest return per dollar.

Transition to Lower-Cost Holdings

Use harvesting as a chance to upgrade your portfolio. Sell a losing actively managed fund with a 1% expense ratio and replace it with a low-cost index ETF at 0.03%. You capture the tax loss and reduce ongoing costs. Over a decade, the expense ratio savings alone can exceed the initial tax benefit of the harvested loss.

Year-End Batch Harvesting

If continuous harvesting is not practical, do a portfolio review in November. Identify all unrealized losses, compare against gains already realized, and batch-harvest enough losses to zero out your net gain. Watch the wash sale rule — the 30-day window extends into January, so plan repurchases carefully. Visit our short-term and long-term pages for rate details.

Common Tax Loss Harvesting Mistakes to Avoid

These errors can wipe out your tax savings or, worse, create unexpected tax bills. Every one of them is preventable.

Triggering a Wash Sale

The most common mistake. Buying the same stock back too quickly disallows the loss. Track all accounts — IRA purchases can trigger wash sales against taxable account losses.

Sitting in Cash After Selling

Missing a market rally while sitting in cash can cost far more than the tax benefit you captured. Always reinvest immediately in a replacement position.

Ignoring Transaction Costs

For very small losses, trading commissions and bid-ask spreads can eat up the tax savings. Make sure the tax benefit exceeds the total cost of executing the trades.

Harvesting Long-Term Before Short-Term

Short-term losses offset higher-taxed short-term gains first. If you have both types of losses, prioritize short-term positions for the biggest tax savings per dollar.

Not Tracking Carry-Forward Losses

Carry-forward losses are a permanent tax asset, but many investors lose track of them. Keep records of unused losses each year — they can save you thousands in future tax years.

Letting the Tax Tail Wag the Investment Dog

Do not sell a position you believe in long-term just for a tax deduction. Harvesting should align with your investment strategy, not override it. If the fundamentals are solid, the tax savings may not be worth exiting.

Pro Tip: Keep a Loss Harvesting Log

Maintain a spreadsheet tracking every harvested loss: the security, sale date, loss amount, replacement investment, and the 31-day repurchase date if applicable. This makes tax filing easier, prevents accidental wash sales, and ensures you never lose track of carry-forward losses.

Related Tax Calculators

Explore our other free tax calculators to get a complete picture of your capital gains tax situation.

Explore More Capital Gains Tax Tools

Capital Gains Calculator Crypto Tax Stock Tax Real Estate Tax 1031 Exchange Short-Term Gains Long-Term Gains NIIT Calculator State Tax Rates Home Sale Tax