Tax-Loss Harvesting: Offset Gains With Losses

It's December 15th. Your brokerage statement shows $18,000 in realized gains from selling some winners earlier this year. Meanwhile, that tech stock you bought in March is down $12,000 and you're wondering whether it makes sense to sell it now, take the loss, and buy something similar.

This tool is for investors trying to figure out whether harvesting a loss makes sense and how much it would actually save. Not just the headline number—the real math, including short-term vs. long-term netting, the $3,000 ordinary income deduction, and what carries forward to next year.

If you have gains to offset and positions underwater, there's probably money on the table. This calculator shows you exactly how much.

• Short-term vs. long-term losses: Short-term losses offset short-term gains first (taxed at your ordinary rate, up to 37%). Long-term losses offset long-term gains first (taxed at 0-20%). Harvesting a short-term loss to offset a short-term gain saves more tax than the same loss against a long-term gain.
• The $3,000 ordinary income deduction: If your losses exceed your gains, you can deduct up to $3,000 from your regular income. At a 32% marginal rate, that's $960 saved. Any excess carries forward indefinitely.
• Wash-sale avoidance: If you buy the same (or "substantially identical") security within 30 days before or after selling at a loss, the loss is disallowed. You have to wait 31 days or buy something different.
• Your tax bracket: The higher your income, the more valuable the loss. Someone in the 37% bracket saves $3,700 on a $10,000 short-term loss. Someone in the 12% bracket saves $1,200. Same loss, different value.
• Carryforward strategy: If you expect a big gain next year (selling RSUs, exercising options, selling property), banking losses now gives you ammunition to offset that future gain.

Example 1: Wei Harvests Strategically

Wei sold stock this year for $25,000 in short-term gains. She also has a position down $18,000 that she's been holding for 10 months. Her marginal tax bracket is 32%.

Wei sells the losing position, immediately buys a similar (but not identical) ETF to maintain market exposure, and saves $5,760 in taxes. The loss is short-term, offsetting short-term gains at the highest rate—maximum value.

Example 2: James Has More Losses Than Gains

James has $6,000 in long-term gains this year but is sitting on $22,000 in losses from a biotech stock that crashed. He's in the 24% bracket for ordinary income and would pay 15% on long-term gains.

James gets immediate savings plus $13,000 in losses banked for future years. If he expects to sell RSUs next year with big gains, that carryforward becomes even more valuable.

• Triggering a wash sale: You sell at a loss on December 20, then buy the same stock on January 5 thinking the new year resets things. It doesn't—the 30-day window spans calendar years. Loss disallowed.
• Buying in your IRA: You sell a stock in your taxable account, then buy it in your IRA the same week. That's a wash sale. IRAs count. The loss is disallowed, and the cost basis doesn't transfer.
• Wasting long-term losses on short-term gains: If you use a long-term loss (worth 15-20% tax savings) to offset a short-term gain (worth 24-37%), the IRS nets them—you lose the ability to use that loss against future long-term gains. Think about sequencing.
• Ignoring transaction costs: If the loss is $500 and you're paying bid-ask spreads on both the sale and the replacement purchase, the tax savings might not be worth it. Bigger losses are more obviously worth harvesting.
• Waiting until December 30: Everyone harvests in late December. Spreads widen, prices are volatile, and you might miss settlement deadlines. Check your portfolio in October or November instead.

Sell a stock at a loss, then buy it back within 30 days before or after? The IRS disallows the loss. The 30-day window goes both directions—so it's really a 61-day danger zone.

"Substantially identical" means the same stock or very close. Different share classes of the same company count. But swapping one S&P 500 ETF for a different S&P 500 ETF from another provider? The IRS has never explicitly said that's a wash sale, and most tax professionals consider it safe. Swapping Apple stock for a tech sector ETF? Clearly not identical.

If you trigger a wash sale, the disallowed loss gets added to the cost basis of the new shares. You'll eventually get the tax benefit—just not now.

We follow IRS netting rules: short-term gains net against short-term losses first, long-term against long-term. If one category has a net loss and the other a net gain, they cross-offset. Net losses beyond gains offset up to $3,000 of ordinary income, with the rest carrying forward.

What we include: Short-term and long-term gains/losses you enter, your federal tax rates, the $3,000 ordinary income offset, and carryforward calculation.

What we don't include: Wash-sale detection, state taxes (though you can add an optional state rate), or automatic position tracking from your brokerage. This is a planning tool—verify numbers with your broker's 1099-B before filing.