Tax-loss harvesting (TLH) is one of the simplest legal ways to improve your after-tax returns. You realize capital losses in a taxable brokerage account and immediately reinvest the proceeds in a similar—but not “substantially identical”—holding, so your market exposure stays intact while you bank a loss you can use against gains (and potentially up to $3,000 of ordinary income per year). Done right, TLH can shave meaningful dollars from your annual tax bill without trying to outsmart the market.
This longform guide is a practitioner’s manual: what TLH is (and isn’t), how the wash-sale rule really works, the difference between economic and tax losses, smart replacement choices for index funds and ETFs, how to automate a harvesting calendar, what to do when markets whipsaw, where TLH fits alongside 401(k)s, IRAs, and HSAs, and a concrete year-round workflow you can copy. Throughout, we’ll stick to plain English and real numbers so you can implement confidently.
Educational note: This article focuses on U.S. federal rules as commonly interpreted. Tax is personal—confirm specifics with a CPA for your situation and state.
1) What Tax-Loss Harvesting Actually Does (and Why It Works)
When you sell a holding in a taxable account for less than your cost basis, you generate a capital loss. The IRS lets you net these losses against capital gains. If losses exceed gains in a given year, you can deduct up to $3,000 ($1,500 if married filing separately) against ordinary income. Any leftover losses carry forward indefinitely to future years.
Key benefits:
- Reduces taxes today by offsetting realized gains (from rebalancing, fund distributions, selling winners for goals) and potentially part of your ordinary income.
- Creates a tax asset for tomorrow: unused losses carry forward; you can apply them when you eventually diversify out of a concentrated winner, sell a business stake, or exit a rental property (capital nature).
- Keeps your investment plan intact if you immediately buy a replacement that maintains similar risk/return characteristics.
What TLH is not:
- It is not market timing. You’re not predicting bottoms or tops; you’re swapping exposure.
- It is not a free lunch. You lower current taxes, but your cost basis in the replacement resets lower, potentially increasing future gains.
In short, TLH converts volatility into tax flexibility without changing your long-term allocation.
2) The Wash-Sale Rule—How to Avoid It Calmly
The wash-sale rule disallows a loss if you buy the same or substantially identical security within the 30 days before or after the sale that generated the loss (a 61-day window centered on the sale date). If triggered, the loss isn’t gone; it’s deferred by being added to the basis of the replacement shares. But it defeats your near-term tax goal.
Practical guardrails:
- Don’t buy the same fund/ETF (including automatic DRIPs) within 30 days before/after your loss sale.
- Use a similar—but not substantially identical—replacement.
Examples of Swaps:
- Total U.S. market fund A ↔ total U.S. market fund B from another provider tracking a different index.
- S&P 500 ETF A ↔ broader U.S. large-cap blend ETF B.
Mind spouse accounts and IRAs
Purchases in any account you control—including a spouse’s taxable account or IRAs—can trigger wash sales on a loss in your taxable account if the security is substantially identical.
3) Economic Loss vs. Tax Loss—Why Basis Matters
You can have a tax loss even if the market is up since you originally bought—because of lot-level basis. Every purchase creates a “lot” with its own cost.
Actionable tip: Use specific lot identification
When you sell to harvest, pick the highest-basis lots (the biggest losses) first. This preserves lower-basis lots you may want to pair with future gains or donate.
4) Choosing Smart Replacements (Keep Exposure, Ditch the Identical)
The art of TLH is the pairing: identify two (or three) funds per asset class that you’re comfortable holding indefinitely.
Common pairings (illustrative, not endorsements):
- U.S. Total Market: Fund tracking CRSP ↔ fund tracking Dow Jones ↔ fund tracking S&P.
- U.S. Large-Cap Blend: S&P 500 tracker ↔ Russell 1000 tracker.
5) A Calm, Repeatable Workflow You Can Copy
Step 0: Prep your policy
For each asset class, pick three acceptable ETFs/funds. Turn off DRIP on taxable accounts.
Step 1: Set a harvesting cadence
Monthly check works for most people; quarterly is fine too. Use thresholds: harvest only if the unrealized loss exceeds $500 or 1–2% of position value.
Step 2: On harvest day
Log into your taxable account and pull unrealized gains/losses by lot. Sell the highest-basis lots and immediately buy your replacement.
6) Numbers That Make This Real (Three Scenarios)
Scenario A: Steady accumulator with $250,000 taxable portfolio
Scenario B: Concentrated single-stock holder
Scenario C: Retiree funding withdrawals
7) Where TLH Fits in the Bigger Picture (Accounts & Priorities)
- Max tax-advantaged accounts first.
- Asset location matters.
- Charitable giving & TLH can tag-team.
- Roth conversions coordination.
8) Special Cases & Gray Areas You’ll Bump Into
Mutual fund to ETF (same sponsor) swaps
Factor funds with similar names
State taxes
Cryptocurrency
Short-term vs. long-term losses
9) Implementation Details That Save Headaches
- Turn off DRIP in taxable for tickers you may harvest.
- Use specific-lot ID as your default sale method.
- Set alerts: price-movement alerts on your main ETFs.
10) What to Do in Wild Markets (Whipsaws & V-Shaped Rebounds)
Markets drop 6% in a week, you harvest, and two days later they bounce 4%. That’s okay. You maintained exposure via the replacement, so you participated in the rebound.
11) Recordkeeping & Taxes—How It Shows Up on Your Return
Your broker will issue Form 1099-B. If you use tax software, it imports automatically; otherwise, attach Form 8949 and Schedule D.
12) Risks, Limits, and When to Skip TLH Altogether
- Trading costs and spreads.
- Behavioral risk.
- Complexity.
- No taxable account or tiny balances.
13) Putting It All Together—A One-Page Policy You Can Copy
Objective:
Improve after-tax returns by realizing losses while maintaining strategic exposure.
Cadence & thresholds:
Review monthly. Harvest if loss ≥ 1–2% or ≥ $500.
Process:
Specific-lot sale; immediate purchase; 31-day wash-sale blackout.
Final Word
Tax-loss harvesting is about being deliberate. You’re not speculating; you’re translating market noise into a tax benefit while keeping your long-term plan unchanged.
Seria útil se eu transformasse alguma dessas seções de “processo” ou “workflow” em uma lista de verificação (checklist) formatada para você usar mensalmente?