Mr Calcu | Offset capital gains and lower your tax bill with our easy, expert-backed tax loss harvesting calculator.
Discover and maximize your tax savings with our smart tax loss harvesting calculator. Take control of your investments and reduce stress during tax season.
Tax Loss Harvesting Benefit Calculator Description
What is Tax Loss Harvesting?
Tax loss harvesting is a strategic method to reduce tax liability by selling investments that have declined in value. The goal is to use realized losses to offset capital gains and potentially deduct up to $3,000 annually from ordinary income.
How It Works
- Capital Gains: Occur when you sell an asset for more than its purchase price.
- Capital Losses: Occur when you sell an asset for less than its purchase price.
- Offsetting: Losses are used to cancel out gains of the same type (short-term vs. long-term).
- Deduction Limit: Up to $3,000 of excess losses may be deducted from ordinary income per year.
- Carryforward: Unused losses roll forward indefinitely to future years.
Mathematical Formula
Net Capital Gain = Total Capital Gains - Total Capital Losses
Tax Liability = Net Capital Gain × Capital Gains Tax Rate
If Net Capital Loss > 0:
Deduct up to $3,000 from ordinary income
Carry forward remaining losses
Pro Tip: Harvesting losses in high-income years can yield greater tax benefits by offsetting gains taxed at higher rates.
IRS Wash Sale Rule
If you sell a security at a loss and buy the same or a "substantially identical" security within 30 days before or after the sale, your loss will be disallowed under the wash sale rule.
Common Edge Cases
- Only Losses: No gains? You can still deduct $3,000 from your regular income.
- Mutual Fund Distributions: Can create gains even if you didn’t sell shares. Losses from other assets may help offset.
- Crypto Assets: Currently exempt from wash sale rules. Losses can be harvested more flexibly.
- Short-Term vs. Long-Term: Losses are matched to gains of the same type before cross-netting.
- Inheritance Exception: Assets inherited receive a stepped-up basis, often eliminating loss opportunities.
Real-World Examples
Case Study A: High Earner with Large Gains
- Sarah realizes $25,000 in long-term capital gains.
- She sells underperforming stocks for $18,000 in long-term losses.
- Her net taxable gain becomes $7,000.
- At a 20% tax rate, she saves $3,600 in taxes.
Case Study B: Small Gains, Big Losses
- Alex has $2,000 in capital gains and $10,000 in capital losses.
- He offsets the gains and deducts $3,000 from ordinary income.
- The remaining $5,000 loss is carried forward.
- Assuming a 24% tax bracket, he saves an extra $720 this year.
Start maximizing your tax savings today—run your numbers now with our free calculator!