---
title: 'Tax-Loss Harvesting'
source: 'https://youtube.com/watch?v=WvZGJG8YSwg'
video_id: 'WvZGJG8YSwg'
date: 2026-06-28
duration_sec: 204
---

# Tax-Loss Harvesting

> Source: [Tax-Loss Harvesting](https://youtube.com/watch?v=WvZGJG8YSwg)

## Summary

Tax-loss harvesting is a strategy that allows investors to use investment losses to offset capital gains, thereby reducing their tax bill. The process involves selling underperforming investments at a loss and using that loss to counterbalance the gains from profitable investments. The proceeds from both sales are then reinvested in securities that align with the investor's asset allocation and time horizon.

### Key Points

- **Core Concept** [0:07] — Tax-loss harvesting involves selling a losing investment to offset gains from a winning one, reducing taxes.
- **Practical Example** [0:49] — Example: Sell tech stocks (gain) and healthcare stocks (loss) to rebalance portfolio and offset gains.
- **Income Reduction Limit** [1:43] — Up to $3,000 of remaining capital loss can reduce ordinary taxable income each year; excess carried forward.
- **Tax Benefit Calculation** [2:01] — At 35% marginal tax rate, total tax benefit could be $8,050.
- **Account Type Restriction** [2:20] — Only applies to taxable brokerage accounts, not 401(k)s or IRAs.
- **Loss-Gain Matching Rules** [2:27] — Short-term losses offset short-term gains; long-term losses offset long-term gains; excess can cross-apply.
- **Wash-Sale Rule** [2:40] — Wash-sale rule: cannot claim loss if same or substantially identical security bought within 30 days before/after sale.

## Transcript

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