Tax-Loss Harvesting
Financial term in the Tax category
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 Tax
A 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 Rule
An 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 Loss
A loss incurred when selling an asset for less than its purchase price. Capital losses can offset capital gains to reduce tax liability.
Frequently Asked Questions
What is Tax-Loss Harvesting?
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.
Why is Tax-Loss Harvesting important in personal finance?
Tax-Loss Harvesting is an important tax concept that helps individuals make better financial decisions. Understanding Tax-Loss Harvesting can improve your financial planning and help you achieve your money goals.
How does Tax-Loss Harvesting relate to Capital Gains Tax?
Tax-Loss Harvesting and Capital Gains Tax are related financial concepts. A 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.
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