Tax-Loss Harvesting Tool
Turn market downturns into tax savings.
Calculate Tax Savings
Estimate the immediate tax savings of realizing a loss.
The Mathematics of Tax-Loss Harvesting
As detailed in our Tax Optimization FIRE Guide, tax-loss harvesting allows you to generate a "tax alpha" by turning market volatility into tangible cash flow via tax savings.
The Order of Operations
- Losses first offset gains of the same type (short-term vs. short-term, long-term vs. long-term).
- Excess losses then offset gains of the opposite type.
- If net losses remain, up to $3,000 offsets ordinary income (your highest marginal rate).
- Any remaining losses carry forward to future years indefinitely.
Navigating the Wash Sale Rule
The IRS requires you to wait 30 days before buying a "substantially identical" security. If you don't, the loss is disallowed. For index investors, a common strategy is swapping between two different but highly correlated funds, such as switching from an S&P 500 fund to a Total US Stock Market fund. The performance will be nearly identical, but the IRS views them as different securities.
Robo-Advisors
Many robo-advisors offer automated daily tax-loss harvesting. While this sounds great in theory, remember that automated harvesting across hundreds of micro-lots can make your tax return extremely complicated and lock you into their platform.