06/05/2026
📉 What Is Tax Loss Harvesting? And Why Do Wealthier Investors Pay Attention to It?
When markets are volatile, most people focus on what they've lost.
Savvy investors often ask:
💡 "Can this loss help me save on taxes?"
That's the idea behind tax loss harvesting.
🔹 A Simple Example
Let's say you own a stock in a taxable investment account (not an IRA or 401(k)).
📈 Earlier this year, you sold Stock A and realized a $20,000 gain.
Later in the year, you own Stock B that is down $15,000.
By selling Stock B and realizing the loss, you could potentially:
✅ Offset $15,000 of your $20,000 gain
Instead of paying taxes on a $20,000 gain, you may only owe taxes on a $5,000 net gain.
🔹 Another Example
Suppose you have:
• $10,000 in realized gains
• $13,000 in realized losses
Your losses could:
✔ Offset the entire $10,000 gain
✔ Potentially offset up to $3,000 of ordinary income annually
Any remaining losses may be carried forward to future years.
⚠️ Important Notes
Tax loss harvesting generally applies to taxable brokerage accounts.
It does not provide the same benefit inside:
❌ Traditional IRAs
❌ Roth IRAs
❌ 401(k)s
Also, investors must be careful of the wash sale rule, which can disallow a loss if substantially identical investments are repurchased too quickly.
💡 The Takeaway
Tax loss harvesting isn't about trying to time the market.
It's about being intentional with taxes and potentially improving your after-tax returns over time.
Many investors focus on investment performance.
Successful long-term investors also pay attention to tax efficiency.
