Tax-loss harvesting means selling an investment below what you paid, so the loss offsets gains, then buying something similar so you stay invested. A realized loss cancels capital gains dollar for dollar, then up to $3,000 a year of other income ($1,500 if married filing separately), and anything left carries forward to later years. A $10,000 loss is worth $3,200 if it offsets short-term gains in the 32% bracket, $1,500 against long-term gains at 15%, and nothing if your gains already fall in the 0% bracket. Most of the benefit is a postponement rather than a permanent saving, and one rule, the wash sale rule, undoes it more often than people expect.
For the short definition, see the glossary entry on tax-loss harvesting. This guide covers the decision: when it’s worth doing, how it goes wrong, and when it’s worth paying someone.
The rules that matter in 2026
Netting. Gains and losses are sorted into short-term (held one year or less) and long-term (held more than a year). Short-term gains are taxed as ordinary income. Long-term gains get the lower rates. For 2026, the 0% rate applies to taxable income up to $98,900 on a joint return ($49,450 single), and the 15% rate up to $613,700 joint ($545,500 single). Above that it’s 20%. Households with modified adjusted gross income above $250,000 joint ($200,000 single) also owe the 3.8% net investment income tax on investment gains.
The $3,000 limit. Once losses exceed gains, only $3,000 a year comes off ordinary income. The rest carries forward with no expiry.
The wash sale rule. If you buy substantially identical stock or securities within 30 days before or after the sale, the loss is disallowed for now. That’s a 61-day window. The disallowed loss is added to the basis of the new shares, so you get it back later. Three versions catch people:
- Your IRA or Roth IRA buys it. The IRS says this is a wash sale too, and here the loss isn’t added to any basis. It’s gone.
- Your spouse buys it, in any account.
- Automatic dividend reinvestment buys a few shares of the fund you just sold.
Trade date counts. A sale on December 31 belongs to that tax year even though it settles in January.
Harvesting only works in a taxable brokerage account. Losses inside an IRA or 401(k) have no tax effect.
What a harvested loss is worth
The catch is basis. When you harvest, the replacement shares start with a lower cost basis, so the gain you avoided today shows up when you sell later. The saving becomes permanent in three cases: you give the shares to charity, you hold them until death and heirs get a step-up in basis, or you sell later at a lower rate than the one you saved at. Otherwise the value is the time you had the money, plus any gap between the rate you saved and the rate you later pay.
The reverse move. If your taxable income is under the 0% threshold, harvesting gains can be the better play: sell winners, pay 0%, buy back right away (the wash sale rule only applies to losses) and reset your basis higher.
Common mistakes
- Harvesting in a year your gains are taxed at 0%. You use up a loss that would have been worth more later.
- Triggering a wash sale in an account you forgot. A spouse’s IRA, a 401(k) buying the same fund, or a dividend reinvestment.
- Letting the tax tail wag the portfolio. Moving into a replacement fund with a higher expense ratio, a different risk level, or sitting in cash for 31 days and missing a rebound.
- Counting the saving twice. Harvesting lowers your basis. A firm that shows only the tax saved this year, and not the larger gain later, is showing half the picture.
- Buying a fund just before its December distribution in a taxable account, then owing tax on gains you never had.
Even firms that run harvesting software get this wrong. In 2018 the SEC fined Wealthfront $250,000 for claiming from October 2012 to mid-May 2016 that it monitored all client accounts for wash sales when it didn’t; at least 31% of accounts in its harvesting program had some wash sales.
Questions to ask an advisor
- How do you check for wash sales in accounts you don’t manage, like my spouse’s IRA or my 401(k)?
- Which replacement funds do you use, and what do they cost compared with what I own now?
- Do you look for losses all year or only in December?
- How do you report the result: the tax saved this year, or the saving net of the larger gain later?
- How does harvesting fit with my charitable giving, Roth conversions and asset location?
- Is this included in your fee, and are you paid any other way?
When a fee-only advisor is worth it, and what it costs
You probably don’t need to pay anyone if you have one taxable account of broad index funds. Most brokerages and robo-advisors harvest automatically; see robo-advisor vs financial advisor.
Advice is worth paying for when the stakes or the tangle are bigger:
- A concentrated position or company stock, where harvesting losses elsewhere lets you sell down the big holding with less tax. See financial advisor for RSUs and stock options.
- A large one-time gain, from selling a business, property or a fund, that losses can be lined up against. See selling a business.
- Several household accounts, where wash sales are easy to trigger and hard to see.
- Coordination with giving and conversions, such as donating your highest-gain shares and harvesting your losers in the same year. See the charitable giving strategy guide.
Among fee-only firms that publish prices, the median hourly rate is $300 (middle half $250 to $350), a one-time plan is $2,000, and ongoing planning is $4,500 a year. Investment management that includes harvesting is usually priced as a share of assets, a median of 1%. On a $1 million portfolio that’s $10,000 a year, more than harvesting alone is likely to save in most years, so judge a percentage fee on everything it includes. The 1% fee guide shows the math, and the year-end tax planning checklist shows where harvesting fits among the December deadlines.
To compare advisors who do this work, browse advisors for high earners, the tax planning specialty, or the high earners and executives pages in the public graph.