Back to all articles
July 12, 2025
Tax Loss Harvesting: Harness The Power of Losses
Tax-loss harvesting is a strategy where investments that have decreased in value are sold at a loss for the purpose of offsetting already realized capital gains.
In what situations can you utilize ‘Loss Harvesting’?
In order to benefit from tax loss harvesting this year, you’ll want three things to happen:
- You have realized capital gains from selling an investment
- Investments that you’re holding and willing to sell have gone down in value
- Your capital gains are taxed at a rate higher than 0%
How Can Loss Harvesting Benefit You?
- Pay less at tax time, since you’re reducing capital gains tax
- Losses will reduce your taxable income and lower your ordinary tax rates
- Short term losses will potentially provide the greatest benefit because they will be used to offset short term gains first → short term gains are taxed at higher marginal rates
- If you have more capital losses than capital gains - you can utilize up to $3,000 each year from your capital loss pool to reduce your taxable income.
- Losses may reduce your net investment income tax (3.8%)
Keep an eye 👀 (or two) out for the following
- Selling your investments may be subject to transaction or advisor fees
- If you purchase the same asset (stock, security, etc) within 30 days before or after selling, wash sale rules will be triggered and your sale won’t create a tax loss this year.
- Don’t forget about any auto-buy or auto-sells you have set up!
- You can only take capital losses to the extent you have capital gains (plus an additional $3,000)
- Losses that can’t be used this year can be carried forward indefinitely and can always be used to offset gains. Capital losses generally can only offset ordinary income up to $3,000/year.
Example: You purchased shares of Apple stock for $10,000 in December 2020. In January 2022, you realized $15,000 of unrelated capital gains. Your shares of Apple stock went down in value to $4,000 and you realized a $6,000 capital loss. You would pay tax on a $9,000 net capital gain. (15,000 capital gain - 6,000 capital loss)
This information is for educational purposes only and does not constitute financial advice. Consult a qualified professional before making any investment decisions.
References
