Tax-Loss Harvesting Calculator
Calculate potential tax savings from harvesting investment losses to offset capital gains.
Tax-loss harvesting is an investment strategy where you sell investments that have declined in value to realize a capital loss. These losses can be used to offset capital gains from other investments, potentially reducing your tax bill.
How it works: When you sell an investment at a loss, you can use that loss to offset gains:
- First, short-term losses offset short-term gains
- Then, long-term losses offset long-term gains
- Any remaining net losses can offset up to $3,000 of ordinary income per year
- Excess losses carry forward to future tax years indefinitely
The calculation:
Tax savings = Harvestable losses × Applicable tax rate
For capital gains, the applicable rate depends on whether the gains are short-term or long-term:
- Short-term capital gains (held less than 1 year) are taxed at your ordinary income rate
- Long-term capital gains (held more than 1 year) are taxed at preferential rates: 0%, 15%, or 20% depending on income
The wash sale rule: You cannot repurchase the same or a “substantially identical” security within 30 days before or after the sale. If you do, the loss is disallowed for tax purposes. The 30-day window applies both before and after the sale, creating a 61-day total window.
Strategies to stay invested while harvesting:
- Buy a similar but not identical fund (e.g., switch from one S&P 500 index fund to another provider’s similar fund)
- Wait 31 days and repurchase the original investment
- Buy an ETF version of a mutual fund from a different provider
When to harvest losses: Review your portfolio periodically, especially near year-end. However, harvesting can be done at any time during the year. Some advisors recommend checking quarterly for opportunities, as market volatility creates harvesting windows throughout the year.
Long-term benefit: The real power of tax-loss harvesting is that deferred taxes can continue to compound. By paying less in taxes now, you keep more money invested, which generates additional returns over time. Studies suggest tax-loss harvesting can add approximately 0.5-1.5% in after-tax returns annually for taxable portfolios.
Limitations: This strategy only applies to taxable investment accounts. It does not apply to retirement accounts like 401(k)s or IRAs, which are already tax-advantaged.