Tax-Loss Harvesting Calculator

Tax-loss harvesting is one of the few legitimate strategies that lets you turn investment losses into something valuable — specifically, tax savings that reduce what you owe on gains elsewhere in your portfolio. The concept is straightforward: sell an investment that's trading below what you paid for it, realize the loss on paper, use that loss to offset taxable gains (or ordinary income), and immediately reinvest in something similar to maintain your market exposure. Done consistently over time, this strategy can meaningfully improve your after-tax returns without changing your investment strategy or taking on different risk. But the wash sale rule creates a trap that undermines the benefit if you're not careful about what you buy after selling.

Systematic vs Opportunistic Harvesting

Opportunistic harvesting waits for market declines and harvests when losses appear. This is better than nothing but relies on market timing and often misses losses during bull markets when individual positions lag the broader market. Systematic harvesting — reviewing the portfolio on a fixed schedule (quarterly, monthly, or triggered by a threshold like a 5% or 10% decline) — captures more harvesting opportunities over time.

Robo-advisors like Betterment and Wealthfront offer automated daily tax-loss harvesting that continuously monitors positions for harvesting opportunities and executes trades automatically, maintaining exposure through substitute securities. Research suggests daily automated harvesting generates 0.77% to 1.55% in additional annual after-tax alpha compared to no harvesting, depending on the study and market conditions. For a $500,000 taxable portfolio, that's $3,850 to $7,750 annually — significant enough to justify the management fee for high earners with substantial taxable accounts.

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The Mechanics of Loss Harvesting

When you sell an investment at a loss, you recognize a capital loss equal to your cost basis minus the sale proceeds. Capital losses first offset capital gains of the same type — short-term losses offset short-term gains; long-term losses offset long-term gains. Then excess losses of either type offset gains of the other type. Net losses remaining after offsetting all capital gains can deduct up to $3,000 of ordinary income per year, with any remaining excess carried forward indefinitely to future tax years.

The tax value of a harvested loss equals the loss amount multiplied by the rate it offsets. A $10,000 long-term capital loss that offsets a $10,000 long-term capital gain saves you $10,000 × 15% = $1,500 at the 15% long-term rate. The same loss offsetting ordinary income saves $10,000 × 22% = $2,200 at a 22% marginal rate. Losses that offset short-term gains (taxed as ordinary income) are more valuable than losses that offset long-term gains (taxed at preferential rates). This asymmetry matters when you have a mix of short- and long-term gains — harvested losses ideally offset your short-term gains first.

Real-World Harvesting Example

Nicole, 35, in San Francisco, California has a taxable brokerage account with the following positions in a down market year: Tech ETF with $22,000 unrealized loss, International ETF with $8,500 unrealized loss, Bond Fund with $3,200 unrealized gain. She harvests both losses: realizes $30,500 in combined capital losses. Her realized capital gains this year from selling appreciated positions: $18,600 in long-term gains. After harvesting: $30,500 in losses offset $18,600 in long-term gains = $11,900 net loss. From the $11,900 net loss: $3,000 offsets ordinary income (worth $3,000 × 32% = $960 at her marginal rate). Remaining $8,900 carries forward to 2025. Tax savings from the $3,000 ordinary income offset: $960. Tax savings from eliminating $18,600 in capital gains taxes at 15%: $2,790. Total 2024 tax savings: $3,750. Plus an $8,900 carry-forward loss ready to offset future gains.

The Wash Sale Rule

The wash sale rule prevents you from claiming a loss while maintaining the same economic position. If you sell a security at a loss and buy a "substantially identical" security within 30 days before or after the sale, the loss is disallowed. The 61-day wash sale window runs from 30 days before the sale through 30 days after. The disallowed loss isn't lost forever — it adds to the cost basis of the replacement shares, deferring (rather than permanently eliminating) the tax benefit. But deferral is much less valuable than an immediate deduction, and if you're not tracking carefully, you can accidentally trigger wash sales that permanently delay your harvested loss.

James, 42, in Denver, Colorado holds shares of an S&P 500 index ETF (VOO) in a taxable account that's worth $18,000 less than he paid. He sells it December 28, harvesting the $18,000 loss. He immediately buys iShares Core S&P 500 ETF (IVV) — same index, different fund. Are these substantially identical? The IRS has never issued definitive guidance on ETFs tracking the same index, but the consensus among tax professionals is that ETFs tracking the same index from different providers (Vanguard vs iShares vs SPDR) are not substantially identical. Switching from VOO to IVV harvests the loss without triggering wash sale, maintains S&P 500 exposure, and after 31 days James can switch back to VOO if preferred. Individual stocks are easier: sell Apple, buy Microsoft — clearly different securities. But selling an Apple individual stock and buying an Apple index fund that contains Apple as a major holding is likely fine because the fund is not substantially identical to the individual stock.

Long-Term Cost Basis Impact

Harvesting doesn't eliminate taxes — it defers them. When you harvest a loss in a security and buy a substitute, the substitute has a lower cost basis (the price you paid at the low point). When you eventually sell the substitute at a higher price, you'll owe more in capital gains than if you'd never harvested. The harvesting benefit is the time value of the deferred taxes — you save taxes today and invest those savings to grow, paying taxes later on the larger amount. This is still a net benefit as long as: (1) your tax rate at sale isn't dramatically higher than your current rate, (2) you hold the position long enough for the deferred tax savings to compound, and (3) you don't forget about the lower basis and miscalculate future taxes.