---
title: 'How Does Tax-Loss Harvesting Work?'
source: 'https://youtube.com/watch?v=GtTc6qavLqA'
video_id: 'GtTc6qavLqA'
date: 2026-06-28
duration_sec: 495
---

# How Does Tax-Loss Harvesting Work?

> Source: [How Does Tax-Loss Harvesting Work?](https://youtube.com/watch?v=GtTc6qavLqA)

## Summary

The video explains how tax-loss harvesting works in practice, using historical market data to show that bull markets are more frequent and severe than bear markets. It emphasizes the importance of harvesting losses during downturns to offset future gains and reduce taxes, using a case study of an investor named Jasmine.

### Key Points

- **Market Context** [0:00] — From 1942 to present, bull markets last longer and are more severe in positive terms than bear markets are in negative terms.
- **Optimist's Take** [1:04] — Bull markets happen more frequently and last longer, so investors should harvest losses during bear markets to prepare for future gains.
- **Real-World Case Study** [2:41] — Jasmine invests $100,000 in an S&P 500 ETF on Jan 1, 2022, and harvests losses when the holding drops by $10,000.
- **First Harvest** [3:22] — On Feb 23, she sells the S&P 500 ETF to harvest $11,000 in losses and buys a total market index ETF to avoid wash sale rules.
- **Second Harvest** [4:00] — On June 13, she sells the total market index ETF to harvest $10,600 in losses and buys back the S&P 500 ETF after 30 days.
- **Why Not Wait for Bottom?** [5:21] — No one can predict market bottoms; waiting risks missing recovery, as seen in 2020 and 2008 where false recoveries occurred.
- **Net Result** [6:24] — By Oct 12, Jasmine harvested $21,700 in losses, which can offset capital gains, $3,000 of ordinary income per year, and carry forward to future years.
- **Long-Term Value** [7:25] — For seven-figure portfolios, six-figure losses can be carried forward to offset future gains and distributions, allowing tax-free recovery.

### Conclusion

Tax-loss harvesting during bear markets provides significant tax benefits that can be used for years, making it a valuable strategy for long-term investors.

## Transcript

it's Brian Preston the money guy so how
does this play out in the real world and
before we talk about a strategy like a
real life actual strategy you could be
employing it's important to have some
context you guys have seen this chart
before but what this chart lays out for
you is all of the bear markets and all
the bull markets from 1942 all the way
through this year uh the length of the
of the market shows how long it lasted
and then the the depth or the height of
it shows how severe it was so what you
can see here is that
more often than not bull markets are
substantially more severe in a positive
way than bear markets severe sense of
negative bull markets are awesome
they're awesome more awesome than bear
Mark but see that's just kind of a given
more awesome than the bearers the
gravity through which you experience a
bull market way outpaces the gravity
which you experience in a bear market
and they tend to last for a lot longer
of a period of time so even when you're
going through periods of volatility like
this it's important to remember that
it's important to keep that archive in
the back of your mind well that's why
here's The Optimist take of this and
Bo's already thrown out one of my slides
but this is a way for me to put it back
in for Daniel's benefit too is that I
would we know that fortunately bull
markets last much longer and happen more
frequently than bear markets so I think
that this puts a priority on the fact
that when we do have that two out of 10
years you want to be like a squirrel
who's harvesting and putting a bunch of
nuts to save for the winter because
there will be really good gains in the
future future so the harder you work
while things are cold outside you know
and you're harvesting and just say that
you will see that the the benefit for
this for many years in the future you
are filling up that Silo of losses
that's one of the things I'm telling you
me personally I'm talking about my
personal portfolio plus what we do for
all of our clients I've done this at
least twice this year because I take it
very serious and we're gonna have an
example of how that boom bust Cycle
Works this is not a setup and forget it
one and done this is something that you
actually can use this strategy
throughout the volatility of the market
so that as we come through this
short-lived bear Market you will be able
to hit the ground running and really
have a really strong tax strategy for
when things are good too but you got to
be a financial mute you have to
recognize that these opportunities don't
happen all the time you can see in the
chart that we just showed that bear
markets don't happen all that frequently
despite what the financial media might
suggest to you so when we have these
large drawdowns like what we're seeing
this year it makes a lot of sense to
capitalize on them it makes a lot of
sense to be able to take advantage of
them so let's do a real world
live case study based on something that
could have happened this year in the
year 2022. so let's say that Jasmine has
a hundred thousand dollars invested in
an S P 500 Index ETF on January 1st of
2022. let's also assume this holding is
held inside of our taxable brokerage
account
she decides that man this year has been
volatile and I'm going to take advantage
of loss harvesting so every time my
holding drops by ten thousand dollars
I'm gonna go Harvest those losses and if
you look from January through September
that occurred in February and then it
occurred again in June so here's the
Practical nature of what Jasmine did
on February 23rd she sells her S P 500
ETF to harvest a little over 11 000 of
losses she then takes the proceeds from
that sale
and immediately buys a total market
index ETF so as not to violate the wash
sale rules they are similar but not
identical well then if you remember uh
she starts feeling pretty good second
quarter started off pretty nice she's
like oh wow this worked all I lost
harvest the market started making money
and then the shoe dropped and then it
happened again and then the market in
the second quarter continued to drop
and so then she decides you know what on
June 13th I have crossed over that ten
thousand dollar loss mark again so now
on June 13th what I'm going to do is I'm
going to sell my total market index I'm
gonna Harvest another 10 600 of losses
and because it's been 30 days since I
last did that transaction I'm gonna buy
back into the S P 500 Index Fund now so
I own the s p i got out of it I rode in
the total Market it lost money too I
harvested that loss now I got back in
the s p 500. well I think that's
interesting though if you just bring up
the the visual again a lot of people the
the naysayers or the the I'll just call
them the trolls under the bridge that
are going to come out in the comments
section they'll say guys why'd you do
all these trades why wouldn't you just
wait until
and just buy them while you do this
horse harvesting one time in June when
it was at the lowest and it's exactly
what you shared and that's why I feel
like I'm just giving the the commentary
of answering the unspoken part is that
we never know when markets are going to
recover if you think about like the
pandemic of what happened in 2020 the
market got crushed went down to 35 but
then shot off like a rocket we harvested
losses in that downturn but then we hit
recovery mode so fast that if you were
trying to wait for the second or even
the third so you would reached the dead
bottom you might have missed it that's
right so we don't remember we none of us
have the crystal ball of knowing what's
going on and when the full recovery
because there might be some false
positives or false recoveries that occur
in any bear Market even in 2008 if you
remember after the election season of
2008 the market actually closed up at
the end of the year not for the year it
was still down 37 but it was at a low of
over 50 percent down but then it closed
up and closed down 37 because it did
have a 10 to 15 percent recovery right
after the election cycle before we went
right back down to the intested the
bottoms of January through March of 2009
it's not uncommon to have those fits and
starts where things start look like
they're getting better that's why you
might do this multiple times in a year
is because you think you're at a bottom
you harvest losses we have a temporary
recovery then we fall even lower you
harvest again I know it's creating work
for you but it shows up and it does
create value over the long term pay
attention to these cycles and so where
is Jasmine net net so through October
12th of this year she's harvested 21 000
than seven hundred dollars in losses now
what those losses can do is they can
offset capital gains this year if she
all sets all of her capital gains they
can offset three thousand dollars of
ordinary income and anything left over
can move into future years and in those
future years it can offset capital gains
or it can offset up to three thousand
dollars of capital losses I mean of
ordinary income a lot of people don't
really say well I don't want to harvest
any more loss I've harvested plenty I've
harvested plenty of harvested plenty
remember bull markets last for a long
time and you can have a down year where
man it feels painful but the next year
is pretty good and you can use those
losses and the next year is pretty good
you can use those losses the next it's
not uncommon to be able to harvest
losses in one year they can offset
triggered gains for the next number of
years you're basically getting to invest
your portfolio tax-free which is a super
super awesome thing to be able to do
well it's not uncommon look I'm going to
talk in reality here for from a
financial planner is that for seven
figure portfolios it's going to be a
six-figure loss that you've harvested
and you're like well why would I mean 3
000 is all I can offset are we really
going to take a hundred thousand two
hundred thousand dollars of of losses
that we're just gonna carry forward yes
yeah because there will be there will be
some years in the future where you're
gonna have distributions at year end or
you have some big transaction yourself
you're going to be so thankful that you
had the losses to offset those gains so
you you got to essentially experience
the recovery without having to pay the
taxes on all those distributions