Tax-Loss Harvesting
TaxGlossary term
Definition
A strategy of selling investments at a loss to offset capital gains and reduce tax liability. Harvested losses can offset gains dollar-for-dollar, and up to $3,000 of excess losses can be deducted against ordinary income each year.
Related terms
- Capital Gains TaxA tax on the profit from selling an asset that has increased in value. Short-term capital gains on assets held less than a year are taxed as ordinary income, while long-term gains on assets held over a year receive preferential lower rates.
- Wash Sale RuleAn IRS rule that disallows claiming a tax loss on a security if you purchase the same or a substantially identical security within 30 days before or after the sale. The disallowed loss is added to the cost basis of the replacement shares.
- Capital LossA loss incurred when selling an asset for less than its purchase price. Capital losses can offset capital gains to reduce tax liability.
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