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What is tax-loss harvesting?

Tax-loss harvesting is the practice of selling investments at a loss to offset capital gains and, within limits, ordinary income, while maintaining similar market exposure using replacement securities and wash-sale-aware rules. Done systematically, it can improve after-tax returns without changing your overall strategy.

How it works

Markets wobble. When a position dips below what you paid for it, selling “harvests” a loss you can use: first to offset capital gains, then up to $3,000 of ordinary income per year under current rules, with anything left carried forward to future years. You immediately buy a similar (but not identical) investment, so your portfolio never actually leaves the market.

The wash-sale rule

The IRS won't let you sell a stock, claim the loss, and buy the same stock right back. That's a wash sale: buy the same or a “substantially identical” security within 30 days before or after the sale, and the loss is disallowed. Harvesting well means using replacement securities that keep your exposure similar while staying on the right side of that rule.

Why systematic beats a December scramble

A lot of harvesting happens in one frantic week at year-end. But the best opportunities tend to show up during volatility (March, June, whenever markets get moody), and many are gone by December. Rules-based harvesting checks all year, so opportunities actually get caught instead of remembered.

The honest limits

Harvesting lowers your cost basis, which can mean more gain to recognize later, so it's often tax deferral as much as tax savings (and deferral has real value). It matters most in taxable accounts; IRAs and 401(k)s don't need it. It can improve after-tax returns (that's “can,” not “will”), and it's a complement to a good plan, not a substitute for one.

How this works at Hunt Wealth

We harvest systematically across taxable accounts with wash-sale-aware replacement rules, and pair it with direct indexing, so losses can be captured at the individual-stock level, not just when the whole index happens to be down.

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