{ "presentation": "complete-card", "format_version": 3, "overview": "Tax-loss harvesting means selling an investment below its cost basis in a taxable account to claim a capital loss. People use it to reduce taxes while keeping their money invested. The potential saving depends on their tax situation, replacement investment and wash-sale rules.", "overview_sources": "Fidelity (2025)", "overview_source_ids": [ "money59-tax-loss-harvesting-fidelity-process" ], "sections": [ { "role": "explanation", "title": "How a loss becomes a tax tool", "items": [ { "label": "A winning holding can contain losing shares.", "text": "Cost basis measures taxable gain or loss, generally using purchase cost plus adjustments. A tax lot is a batch of shares bought together. One lot can be below its basis even when the holding overall has gained. Harvesting involves reviewing lots and the broker's share-selection method before selling. An unsold decline is not a realized loss.", "source": "Fidelity (2025)", "source_ids": [ "money59-tax-loss-harvesting-fidelity-process" ] }, { "label": "Check purchases before and after the sale.", "text": "The U.S. wash-sale rule can disallow a loss when substantially identical securities are acquired within 30 days before or after the sale. This includes relevant spouse purchases and IRA purchases. Automatic dividend reinvestment is a purchase too. A different fund name alone does not establish that the replacement passes the test.", "source": "IRS Publication 550 (2025)", "source_ids": [ "money59-tax-loss-harvesting-irs-550" ] }, { "label": "The replacement choice changes the experience.", "text": "Buying a sufficiently different investment can preserve broad market exposure; staying in cash can miss a rebound. The window is a tax-deduction rule, not a ban on trading or a special account lock. In a taxable wash sale, the disallowed loss generally increases replacement-share basis and carries over the original holding period, postponing its use.", "source": "Fidelity (2026)", "source_ids": [ "money59-tax-loss-harvesting-fidelity-wash" ] }, { "label": "Finish with the tax records.", "text": "Keep dates, lots, proceeds and replacement trades. One year or less is short-term; longer is long-term. Categories net separately, then combine. Form 8949/Schedule D records adjustments and carryforwards.", "source": "IRS Publication 550 (2025)", "source_ids": [ "money59-tax-loss-harvesting-irs-550" ] }, { "label": "A $5,000 loss first absorbs gains before reaching other income.", "text": "Simplified U.S. example: $5,000 of usable realized losses and $2,000 of realized gains leave a $3,000 net capital loss. Assuming no other gains, losses, carryovers or wash-sale adjustments, a filer other than married filing separately can use that $3,000 against other income. A $3,000 deduction is not a $3,000 tax refund. If the loss were $8,000 instead, the same gains would leave $6,000 net: $3,000 used now and $3,000 carried forward. Actual returns must preserve the short-term and long-term categories.", "source": "Illustration · context: IRS", "source_ids": [ "money59-tax-loss-harvesting-irs-409" ], "provenance": "original-illustration" } ] }, { "role": "benefits", "title": "What it can accomplish", "items": [ { "label": "Losses offset gains first.", "text": "Remaining U.S. net losses deduct up to $3,000 yearly ($1,500 married filing separately) against other income; unused losses carry forward.", "source": "IRS · federal rules checked 29 Sept 2026", "source_ids": [ "money59-tax-loss-harvesting-irs-409" ] }, { "label": "A deduction is smaller than a dollar-for-dollar refund.", "text": "For illustration, a $1,000 deduction saving tax at 22% saves $220, assuming it is fully usable at that rate. It does not recover the $1,000 investment decline. Actual savings depend on the gains or income being offset.", "source": "Fidelity (2025)", "source_ids": [ "money59-tax-loss-harvesting-fidelity-process" ] }, { "label": "Lower tax now can mean more tax later.", "text": "Reinvesting after harvesting can leave a lower cost basis and a larger future taxable gain. Deferring tax may leave money invested longer, but that is different from permanently avoiding it. Future sales and tax rates affect the eventual value.", "source": "Charles Schwab (2026)", "source_ids": [ "money59-tax-loss-harvesting-schwab-deferral" ] } ] }, { "role": "cautions", "title": "Good to know", "items": [ { "label": "An IRA replacement can forfeit the loss.", "text": "A substantially identical IRA or Roth IRA purchase within the window can disallow the taxable loss without adding it to IRA basis. This differs from taxable-account deferral. A retirement-account decline does not itself create the taxable loss being harvested.", "source": "IRS Publication 550 (2025)", "source_ids": [ "money59-tax-loss-harvesting-irs-550" ] }, { "label": "A broker's wash-sale flag is not a complete household check.", "text": "The IRS's 2026 broker instructions require reporting for covered securities with the same identifier bought and sold in the same account. Cross-account reporting is permitted, but not generally required. Purchases elsewhere can still matter when preparing the return.", "source": "IRS Form 1099-B instructions (2026)", "source_ids": [ "money59-tax-loss-harvesting-irs-1099b" ] }, { "label": "Automation does not guarantee a usable saving.", "text": "Service eligibility and monitored accounts vary. Schwab's disclosures describe missed opportunities, replacement investments performing differently, and trades outside its program creating wash sales. A fee-paying service still needs to justify its cost; a harvested-loss total alone cannot show that.", "source": "Charles Schwab · service disclosures", "source_ids": [ "money59-tax-loss-harvesting-schwab-disclosures" ] } ] }, { "role": "community", "title": "From community discussion", "items": [ { "label": "An IRA reinvestment complicated a $6,800 loss sale.", "text": "A participant reported the March 11, 2022 taxable bond-fund loss after about $1,250 was reinvested into that fund in an IRA on February 28. The broker showed no loss adjustment, so they kept a spreadsheet. The purchase amount is not the disallowed-loss calculation; matched shares matter.", "source": "Community · Early Retirement", "source_ids": [ "money59-tax-loss-harvesting-er-ira" ] }, { "label": "Selling every share did not settle the wash-sale discussion.", "text": "A March 2025 forum account involved shares bought 11 days before a full sale and a switch to another fund. Replies disagreed about the prior purchase and funds following the same benchmark. The useful question was the entire purchase-and-sale sequence, not just whether the investor ended with zero shares.", "source": "Community", "provenance": "preserved-community-record" }, { "label": "The effort felt worthwhile to one investor and excessive to another.", "text": "One r/Bogleheads commenter regretted the effort after initially enjoying it. Another reported harvesting a $30,000 loss, buying back six weeks later and missing little upside, and was pleased with the carryforward. That timing is an individual experience, not assurance that waiting in cash will work as well again.", "source": "Community · Reddit", "source_ids": [ "money59-tax-loss-harvesting-reddit-effort" ] }, { "label": "An adviser fee made the harvested-loss number harder to judge.", "text": "A Reddit poster reported about $1,600 of losses over six months in a roughly $100,000 direct-indexing account with around 100 individual stocks. They weighed reported annual adviser fees of 0.65–0.75% against convenience and broader planning help. Replies challenged the value; the loss total was not the tax saving or a verified return.", "source": "Community · Reddit", "source_ids": [ "money59-tax-loss-harvesting-reddit-fees" ] }, { "label": "Calendars and spreadsheets were part of the workload.", "text": "Accounts describe turning off automatic buys and tracking lots and replacements. Some skipped harvesting when they needed the same holding back tomorrow; others noticed losses during year-end reviews. Many small service trades meant more records. The potential tax benefit came with this recordkeeping work.", "source": "Community", "provenance": "preserved-community-record" }, { "label": "Harvesting and a Roth conversion served different jobs.", "text": "Discussion distinguished realizing an investment loss from moving eligible retirement assets to Roth, which can create income. Both can affect a tax year without being interchangeable strategies.", "source": "Community", "provenance": "preserved-community-record" } ] } ], "related": [ "taxable-brokerage", "roth-conversions", "three-fund", "fire-number" ] }