What is Tax-Loss Harvesting?
Definition Tax-loss harvesting is the practice of selling investments that have dropped in value to realize a capital loss, which offsets capital gains and up to 3,000 dollars of ordinary income per year, with excess losses carried forward. The proceeds are typically reinvested to keep the portfolio's overall strategy intact. Care must be taken not to trigger the wash-sale rule by rebuying a substantially identical security too soon.
Done well, it turns market downturns into real tax savings for investors, but it requires attention to wash-sale timing to preserve the loss.