Tax-loss harvesting is the practice of selling investments at a loss to offset capital gains, reducing your tax bill. Done correctly, it lets you maintain your investment strategy while capturing tax savings — sometimes thousands of dollars per year. Watch out for the wash sale rule: you cannot repurchase the same or substantially identical security within 30 days.
Your Tax Situation
Held less than 1 year — taxed as ordinary income
Held more than 1 year — 0%, 15%, or 20% tax
Unrealized losses in your taxable accounts
From your Schedule D / prior tax return
Wash Sale Rule: Cannot repurchase the same or substantially identical security within 30 days before or after the sale. Replace with a similar-but-not-identical ETF to maintain exposure while keeping the tax benefit.
Tax Calculation Breakdown
Your 2026 Tax Rates
How Tax-Loss Harvesting Works
Tax-loss harvesting is one of the most reliable ways to reduce investment taxes without changing your long-term strategy. By strategically realizing losses in declining positions, you generate tax savings that compound over decades — often worth $5,000-$30,000 per year for a $500K+ taxable portfolio in volatile markets.
Step 1: Identify Your Gains
Enter your short-term gains (positions held less than one year, taxed as ordinary income) and long-term gains (positions held more than one year, taxed at preferential 0%/15%/20% rates). Short-term gains are usually the priority target for harvesting because they're taxed at your full income rate — which can be 22%, 24%, or even 37%.
Step 2: Identify Harvestable Losses
Review your taxable brokerage accounts for positions currently worth less than you paid. These unrealized losses can be harvested by selling. The key rule: your total harvestable losses first offset all capital gains (short-term first, then long-term), then up to $3,000 of ordinary income, with any remainder carrying forward indefinitely.
Step 3: Avoid the Wash Sale Rule
The 30-day wash sale window is the most important rule in tax-loss harvesting. After selling a fund to harvest losses, you must wait 31 days before buying it back, or buy a similar-but-not-identical replacement. Classic swap pairs: selling Vanguard Total Market (VTI) and buying Schwab Total Market (SCHB), or selling S&P 500 ETF and buying large-cap value + large-cap growth ETFs.
Step 4: Understand the Long-Term Impact
Tax-loss harvesting isn't free money — you're deferring taxes by reducing your cost basis. When you eventually sell the replacement investment, you'll owe taxes on larger gains. The benefit comes from: (1) deferring taxes lets you invest the savings and compound them, and (2) you may be in a lower bracket at sale (retirement), and (3) if you hold until death, your heirs get a stepped-up basis and the deferred gain disappears.
FAQ
Is this tax-loss harvesting calculator free?
Yes, completely free with no signup or account required. All calculations run locally in your browser using 2026 tax brackets. Your financial data is never sent to any server.
What is tax-loss harvesting?
Tax-loss harvesting is the practice of selling investments that have declined in value to realize a capital loss, which you can use to offset capital gains or up to $3,000 of ordinary income per year. You typically reinvest the proceeds in a similar (but not identical) investment to maintain market exposure while booking the tax benefit.
How much can tax-loss harvesting save?
Savings depend on your tax rates and gain/loss amounts. If you have $10,000 in short-term capital gains taxed at 22% and $10,000 in harvestable losses, you save $2,200. If you're in the 15% long-term bracket and harvest $50,000 in losses against $50,000 in long-term gains, you save $7,500. Large portfolios can save tens of thousands annually.
What is the wash sale rule?
The wash sale rule (IRS Rule) prevents you from claiming a loss if you buy the same or a 'substantially identical' security within 30 days before or after the sale. For example, you cannot sell a Vanguard S&P 500 index fund and immediately buy an identical Vanguard S&P 500 ETF. The wash sale disallows the loss. You can, however, buy a similar but not identical ETF from a different provider.
How does the $3,000 ordinary income offset work?
After offsetting all capital gains, any remaining net capital loss can be deducted against ordinary income (wages, salary, interest) up to $3,000 per year. Excess losses carry forward indefinitely to future tax years. So if you have $10,000 in net losses and no gains to offset, you deduct $3,000 this year and carry forward $7,000 for future years.
What are the 2026 long-term capital gains rates?
For 2026: 0% for taxable income up to $47,025 (single) / $94,050 (MFJ), 15% for income up to $518,900 (single) / $583,750 (MFJ), 20% above those thresholds. Additionally, Net Investment Income Tax (NIIT) of 3.8% applies to investment income for high earners above $200,000 (single) / $250,000 (MFJ).
When does tax-loss harvesting make the most sense?
Tax-loss harvesting is most valuable when: (1) you have significant realized short-term gains taxed at ordinary income rates, (2) you're in a high tax bracket, (3) you have a large taxable investment portfolio, or (4) markets have declined significantly from recent highs. It's less valuable in tax-advantaged accounts (IRAs, 401ks) where gains aren't taxed annually.