DayCents

Tax-Loss Harvesting

Tax-loss harvesting means selling an investment that's down to lock in a loss, then using that loss to offset capital gains — and up to $3,000 of ordinary income — on your tax return. You reinvest the proceeds to stay in the market, turning a paper loss into a real tax saving.

The 'wash sale' rule blocks the deduction if you rebuy the same or a substantially identical security within 30 days, so investors swap into a similar-but-different fund. It's most useful in taxable brokerage accounts; it does nothing inside an IRA or 401(k).