[0:02] It's inevitable that you'll lose money on 
some investments and make a profit on others.  
[0:07] But there is a bright side to those losing 
investments—they might help you lower your tax  
[0:11] bill through a process called tax-loss harvesting.
It usually works like this. You sell an investment  
[0:21] that's worth less than what you bought it 
for. You also sell an investment that's  
[0:26] worth more than what you bought it for. The 
loss on the one helps offset the gains on the  
[0:31] other. And then you take the proceeds from 
both sales to reinvest in securities that  
[0:38] fit both your asset allocation and time horizon.
Let's walk through an example. You're looking at  
[0:50] your portfolio, and you see that the tech stocks 
you own have gained in value, while your health  
[0:59] care stocks have dropped. Now your portfolio's 
over-weighted to tech stocks. So you sell some  
[1:12] of those tech stocks, realizing a taxable gain.
You also sell some of your health care stocks,  
[1:19] realizing a loss. You take the proceeds 
from both sales and reinvest those  
[1:25] funds in a way that rebalances your 
portfolio and aligns with your goals. 
[1:31] When it's time to do your taxes, the loss 
on those health care stocks could offset  
[1:35] the gain on those tech stocks, and you won't 
owe any capital gains taxes. In addition,  
[1:43] the IRS allows you to use up to $3,000 of the 
remaining capital loss to lower your ordinary  
[1:49] taxable income each year. In this example, 
the final $2,000 is carried forward and could  
[1:54] be used to offset income in future tax years.
Assuming a 35% marginal tax rate, your overall  
[2:01] tax benefit could be as much as $8,050.
Even if you don't have any capital gains  
[2:08] to offset, any investment losses 
in the current tax year could  
[2:11] still reduce your taxable income by up to $3,000.
There are some rules to keep in mind. You can only  
[2:20] do tax-loss harvesting in your taxable brokerage 
accounts—not in 401(k)s or IRAs. You have to use  
[2:27] short-term losses to offset short-term gains and 
long-term losses to offset long-term gains, but if  
[2:33] you have excess losses in either category, they 
can be applied to either type of gain. Finally,  
[2:40] if you sell a security at a loss and buy the 
same or a "substantially identical" security  
[2:45] within 30 days before or after the sale, 
you can't have it count against gains. So  
[2:50] make sure when you're tax-loss harvesting that 
you're reinvesting in different securities than  
[2:55] the ones you're using to book a loss.
Consult your tax or financial-planning  
[2:59] professional to see how tax-loss harvesting 
could fit into your financial picture.