Estimate tax savings from harvesting realized losses.
This-year tax savings
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Loss offsetting STCG
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Loss offsetting LTCG
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Loss offsetting ordinary ($3K max)
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Carryforward to next year
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Your breakdown
Updates live as you type| Loss applied to | Amount | Tax saved |
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Turning a paper loss into a real tax break
Tax-loss harvesting is the practice of deliberately selling an investment that has fallen below your purchase price to lock in a capital loss, then using that loss to cancel out capital gains and a slice of ordinary income. The position was already underwater; harvesting simply converts the unrealized loss into a realized one the IRS will recognize. You report it on Form 8949 and Schedule D, and if you immediately reinvest in a similar (but not identical) holding, your market exposure barely changes while your tax bill drops. This tool estimates that benefit and shows you how the loss gets applied.
The reason harvesting is worth the effort is the netting rules, which decide the order in which a loss is used. That order matters because short-term gains are taxed at your full ordinary rate while long-term gains get the preferential capital gains rate, so a dollar of loss is worth more when it offsets a short-term gain than a long-term one.
The order the IRS makes you net losses
Capital losses are applied in a fixed sequence. First they offset short-term gains, which are the most heavily taxed. Whatever loss remains then offsets long-term gains. If you still have losses left over, up to $3,000 a year can be deducted against ordinary income such as wages. Anything beyond that does not disappear; it carries forward to future tax years indefinitely, available to offset gains or another $3,000 of income down the road. This tool walks your loss through each of those four stops in order.
Putting a $20,000 loss to work
Take the default: a $20,000 realized loss, with $5,000 of short-term gains and $8,000 of long-term gains to offset, a 32 percent ordinary rate, and a 20 percent long-term capital gains rate. The loss first wipes out the $5,000 short-term gain, then the $8,000 long-term gain, leaving $7,000. Of that, $3,000 offsets ordinary income, and the final $4,000 carries forward to next year. The tax saved this year is the short-term offset times 32 percent, plus the long-term offset times 20 percent, plus the ordinary offset times 32 percent, which works out to about $4,160.
The wash-sale rule and other traps
The rule that undoes careless harvesting is the wash-sale rule. If you buy a substantially identical security within 30 days before or after the loss sale, in any of your accounts including an IRA or your spouse's, the loss is disallowed and tacked onto the cost basis of the replacement shares instead. The clean workaround is to reinvest in a similar but not identical fund, for instance selling a total-market index fund and buying a broad S&P 500 fund, which keeps you invested while sidestepping the rule. After 31 days you can swap back if you prefer the original.
A few more cautions. Harvesting inside a tax-sheltered account is pointless, because there are no taxable gains to offset there; this only works in a taxable brokerage. Watch the basis adjustment too: a harvested loss lowers your future tax now but reduces the cost basis of what you rebought, so part of the benefit is deferred rather than free, especially if you sell the replacement soon. And do not let the tax tail wag the investment dog by selling a holding you actually want to keep just to book a loss. The strategy shines most for high earners with short-term gains and a long time horizon for the carryforward.
Do harvested losses expire if I do not use them?
No. Unused capital losses carry forward indefinitely on your federal return until they are exhausted, so a large loss in a bad market year keeps working for you across future years. Each year the carryforward is applied in the same netting order: gains first, then up to $3,000 against ordinary income. The one thing that ends a carryforward is death; capital loss carryforwards generally do not transfer to heirs, so very large unused losses late in life are worth planning around.
If I have a net loss, can I deduct more than $3,000 against my salary?
Not in a single year. After your losses cancel all your capital gains, the most you can deduct against ordinary income such as wages is $3,000, or $1,500 if you are married filing separately. The excess carries forward. So a $40,000 net loss with no gains to offset would take many years to fully absorb through the $3,000 annual limit alone, which is why harvesting is most powerful when you have realized gains to soak up the loss immediately.