The IRS has rules to prevent “wash sales,” which occur when you sell an investment to realize a loss and then buy a substantially identical investment shortly after. If this happens within 30 days before or after the sale, the loss may be disallowed for tax purposes. To avoid this, consider waiting for the 31-day window before repurchasing a similar investment.
Remember that tax laws can change, and it’s essential to consult with a tax professional or financial advisor before implementing any tax loss harvesting strategy. They can provide personalized advice based on your financial situation and goals.
: Capital losses can be used to offset both long-term and short-term capital gains. If you have a mix of gains with different holding periods, you can strategically match losses to the appropriate gains to maximize the tax benefit.
Utilize Excess Losses: If your capital losses exceed your capital gains, you can use the excess losses to offset up to $3,000 of ordinary income in a single tax year. Any remaining excess losses can be carried forward to offset future gains and income.
Review Regularly: Tax loss harvesting is most effective when done proactively and regularly throughout the year. Market fluctuations can provide opportunities to harvest losses even in a generally upward-trending market.
Maintain Portfolio Allocation: While tax benefits are important, it’s also crucial to consider your long-term investment strategy and portfolio allocation. Reinvesting the proceeds from sold investments into other opportunities can help maintain your desired asset allocation.
Remember that tax laws can change, and it’s essential to consult with a tax professional or financial advisor before implementing any tax loss harvesting strategy. They can provide personalized advice based on your financial situation and goals.
