Glossary
What is tax-loss harvesting?
Tax-loss harvesting means selling an investment in a taxable account that has fallen below its purchase price to realize a loss, then immediately buying something similar to stay invested. The realized loss offsets capital gains and, up to an annual limit, ordinary income.
The point is that your market exposure does not change — only your tax bill does. You sell one broad fund at a loss and buy a comparable one tracking a different index, so the allocation is intact and the loss is banked.
The wash sale rule disallows the loss if you buy a substantially identical security within 30 days before or after the sale. That rule applies across every account you control, including IRAs and a spouse's accounts, which is why this has to be coordinated rather than done account by account.
Harvested losses carry forward indefinitely. Over a long retirement that builds a reserve you can deploy later — including in the years you are unwinding a concentrated stock position.
Related terms
Concentrated stock position
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