Tax-Loss Harvesting Savings Calculator

Tax-Loss Harvesting (TLH)

TLH is the practice of selling losing investments to realize capital losses, then using those losses to offset capital gains and (up to $3,000) ordinary income. The proceeds are reinvested in similar (but not “substantially identical”) securities to maintain market exposure.

The basic formula: Tax savings = Realized loss × Marginal tax rate (federal + state)

Where loss applies first to capital gains (same character matched first), then up to $3,000/year against ordinary income, with excess carried forward indefinitely.

Loss matching priority (IRS):

1. Short-term losses offset short-term gains first
2. Long-term losses offset long-term gains first
3. Excess of either offsets the other type
4. Net loss reduces ordinary income up to $3,000/year
5. Remaining loss carries forward indefinitely

Step 1 is why the calculator asks whether your existing gains are short-term or long-term, and it is the difference between a useful answer and a misleading one. Short-term gains are taxed at your full marginal rate. A loss that cancels a short-term gain in the 37% bracket is worth more than twice as much as the same loss cancelling a long-term gain taxed at 15%. Most tax-loss harvesting calculators quietly assume long-term and understate the benefit by half for anyone who has been trading.

The $3,000 ordinary-income limit is per return, not per person: $3,000 for a single filer and $3,000 for a married couple filing jointly, dropping to $1,500 each if they file separately. It has not been raised since 1978, so inflation has quietly eaten about three quarters of it.

Federal capital gains tax rates (2026):

State capital gains: Most states tax capital gains as ordinary income (CA up to 13.3%, NY up to 10.9%, TX/FL/WA = 0%). Add to federal for total marginal rate.

The wash-sale rule (CRITICAL): You CANNOT deduct a loss if you buy a “substantially identical” security within 30 days before or after the sale. The wash window is 61 days total.

The IRS has never defined “substantially identical” for index funds, which leaves a spectrum rather than a rule:

• Clearly safe: wait 31 days and re-buy the original security. No judgment call required.
• Clearly safe: a genuinely different exposure. Sell an S&P 500 fund, buy a mid/small-cap extended-market fund. Different holdings, different index, no argument.
• Widely done, not risk-free: two total-market ETFs tracking different indexes, say VTI (CRSP) and ITOT (S&P Total Market). Different index providers and different holdings, but the correlation is around 0.99. Most tax advisers treat this as acceptable; nobody can point to a ruling that blesses it.
• Not safe: the ETF and mutual-fund share classes of the same fund, such as VTI and VTSAX. Same portfolio, same manager. That is identical, not merely similar.
• Not safe, and easy to do by accident: an automatic buy in your IRA or your spouse’s account inside the window. Turn off dividend reinvestment and automatic contributions in every account holding the security before you sell.

Common TLH mistakes:

1. Buying back substantially identical security within 30 days (wash-sale violation)
2. Buying in spousal IRA same security (treated as you)
3. Triggering short-term losses unnecessarily (worth less if matched against long-term gains)
4. Forgetting state taxes (often the bigger half of total savings)
5. Harvesting tiny losses that don’t offset trading costs/spreads

TLH “value-add” estimate: Annual TLH typically adds 0.5-1.5% to after-tax return, more in volatile markets. Over 30 years, this compounds significantly, but ONLY in taxable accounts. Tax-advantaged (IRA, 401k) accounts have NO TLH benefit.

Roboadvisors that do TLH automatically:

• Wealthfront (TLH on $0+, daily)
• Betterment (TLH on $0+, daily)
• Schwab Intelligent Portfolios ($50K+ for TLH)