Tax Loss Harvesting Savings Calculator
Tax loss harvesting sells losing investments to realize capital losses, which offset capital gains and up to $3,000 of ordinary income per year. Excess losses carry forward indefinitely. Calculate your savings for 2026.
How Tax Loss Harvesting Works
Sell investments at a loss to realize the capital loss. The IRS lets you offset capital gains dollar-for-dollar with capital losses. Excess losses (above gains) reduce ordinary income up to $3,000 per year. Any remaining losses carry forward indefinitely. Net result: a paper loss becomes a tax savings.
The Wash Sale Rule
If you buy the same or substantially identical security within 30 days before or after the loss sale, the loss is disallowed and added to the cost basis of the replacement security. The rule applies to IRA accounts too — a sale in taxable and rebuy in IRA still triggers wash sale. Workaround: buy a similar-but-not-identical fund (VTI sold, ITOT bought).
Annual Harvesting Strategy
Top investment managers run automated harvesting throughout the year. Manual harvesting works too — review portfolio in December (and during market corrections). Use specific-lot accounting in your brokerage to harvest the highest-cost-basis shares first. Save proceeds in cash for 31 days, or buy a similar fund immediately.
Tax Loss Harvesting Worked Example: $50K Portfolio (2026)
Assume $50,000 taxable brokerage account: VTI position bought at $250/share, now $220/share = $30/share paper loss on 100 shares = $3,000 realized loss when sold. Also sold a $2,000 short-term gain during the year on a bad-timing trade. Tax math per IRS Publication 550 (2026): (1) $2,000 loss offsets the $2,000 short-term gain 100% — no tax owed on that trade. (2) Remaining $1,000 loss offsets up to $3,000 of ordinary income — at the 22% federal bracket + 5% state = 27% marginal, saving $270 in current-year tax. (3) After the sale, immediately rebuy ITOT (similar total-US-market ETF from a different index provider — S&P Total Market vs CRSP Total Market) to stay invested; ITOT is "similar" but not "substantially identical" to VTI per the safe-harbor consensus. Net effect: locked in a $270 real tax refund without changing market exposure. Repeat every downturn.
Source: IRS Publication 550 (investment income and expenses), IRC Section 1091 wash sale rules. Last updated 2026-07-03.