The strategy that changes an investment that has lost money into a tax winner is called tax-loss harvesting.
Tax-loss harvesting may be able to help you reduce taxes now and in the future. It can also help boost your investment returns.
Tax-loss harvesting allows you to sell investments that are down, replace them with reasonably similar investments, and then offset realized investment gains with those losses. The end result is that less of your money goes to taxes and more stays invested and working for you.
2 ways to harvest tax losses
An investment loss can be used for 2 different things:
- The losses can be used to offset investment gains
- The losses can offset $3,000 of income on a joint tax return in one year
Unused losses can be carried forward indefinitely. But there are some important details to know as you see how tax-loss harvesting might help lower your tax bill.
In next blogpost, we will discuss short-term versus long-term gains and losses.