Tax-Loss Harvesting Savings Calculator
Tax-loss harvesting (TLH) sells losing positions to offset capital gains + $3,000/year ordinary income. A $1M portfolio with normal volatility generates $5K-$15K/year tax savings.
| Portfolio balance | — |
| Expected annual harvestable losses | — |
| Capital gains offset (LTCG tax) | — |
| Ordinary income offset ($3,000 cap) | — |
| Total annual tax savings | — |
| Reinvested + compounded over 30 years (8%) | — |
Tax-loss harvesting (TLH) systematically sells losing positions in your taxable brokerage account to generate capital losses, which offset capital gains plus up to $3,000/year of ordinary income. For a $1M diversified equity portfolio, TLH typically generates $5,000-$15,000/year in tax savings — equivalent to 0.5%-1.5% annual tax alpha on the portfolio. This calculator estimates your specific savings.
How TLH Works Mechanically
(1) Identify positions trading below cost basis. (2) Sell to realize the loss. (3) Immediately buy a similar-but-not-identical replacement to maintain market exposure (e.g., sell VTI buy ITOT, or sell VXUS buy IEFA). (4) Wait 31+ days before buying back the original. (5) Use realized losses to offset realized gains; up to $3,000/year offsets ordinary income; excess carries forward indefinitely. Brokers like Wealthfront, Betterment, and Vanguard automate this for taxable accounts.
The Wash-Sale Rule
The wash-sale rule disallows a loss if you buy 'substantially identical' securities within 30 days before or after the sale. Same-ETF wash sales are obvious (sell VTI, buy VTI = wash). Different-but-similar ETFs tracking the same index are gray area but generally OK (sell VTI, buy ITOT both track US total market, but they're different ETFs from different providers). IRS has not definitively ruled — most tax pros consider similar-but-different ETFs safe. Spouse and IRA wash-sale rules apply too: a spouse buying back, or repurchase in your IRA, also triggers wash sale.
When TLH Hurts You
(1) Selling below cost basis defers tax, doesn't eliminate — reducing your basis means more taxable gain when you eventually sell the replacement. The benefit is the time value of money + potential rate arbitrage. (2) If you bequeath the asset, step-up at death erases the deferred tax permanently — making TLH a permanent tax saver. (3) If you donate appreciated shares, you get full FMV deduction with no capital gains — TLH wouldn't help here. (4) If rates fall, you'd realize gains at lower rate later than current loss rate — neutral or negative outcome. Most retail TLH wins.
Last updated May 2026. Sources: IRS Pub 550.