When you sell an investment you are taxed on the gains. If your investment has lost money, you can deduct the difference between what you paid and what you sold the investment for on your taxes. Tax loss harvesting is simply selling investments that have lost value to reduce any taxes owed. Generally, you then buy a similar fund so you keep your money in the market to avoid missing out on any future gains.
There is some complexity since you need to avoid wash sales, which is buying the same or “a substantially equivalent” fund within a 30day window of the sale. You are also limited to a maximum deduction of $3000 per year, though you can roll over any excess to reduce future year taxes.
Basic summary:
When you sell an investment you are taxed on the gains. If your investment has lost money, you can deduct the difference between what you paid and what you sold the investment for on your taxes. Tax loss harvesting is simply selling investments that have lost value to reduce any taxes owed. Generally, you then buy a similar fund so you keep your money in the market to avoid missing out on any future gains.
There is some complexity since you need to avoid wash sales, which is buying the same or “a substantially equivalent” fund within a 30day window of the sale. You are also limited to a maximum deduction of $3000 per year, though you can roll over any excess to reduce future year taxes.
Oh that’s a cool trick. Thanks for the explanation 😀