Tax Loss Harvesting

Tax‑Loss Harvesting: What It Is and Why It Matters

Tax‑loss harvesting is a strategy that uses temporary investment losses in taxable accounts to reduce your tax bill and strengthen long‑term results. When an investment falls below what you paid, you can sell it, realize the loss, and reinvest the money in a similar (but not identical) investment to stay on track. Those realized losses can offset capital gains, reduce up to $3,000 of ordinary income each year, and carry forward to future years. The IRS wash‑sale rule prevents claiming a loss if you repurchase the same or substantially identical investment within 30 days, but you can choose a comparable alternative to maintain your market exposure. Investors use this strategy because it lowers taxes, supports long‑term compounding, and turns market volatility into an advantage without changing their overall plan.