Tax-Loss Harvesting

investment

Also known as: tax loss harvesting, TLH

Updated · Written and reviewed by Konstantin Iakovlev

Detailed explanation

Used by sophisticated investors and most robo-advisors (Wealthfront, Betterment, Schwab Intelligent Portfolios). The IRS "wash sale rule" (IRC §1091) disallows the loss if you buy the same or "substantially identical" security within 30 days before or after the sale. Workaround: buy a different fund tracking a similar (but not identical) index. Example: sell SPY, buy IVV (different SPDR vs iShares but both track S&P 500 — IRS hasn't challenged this distinction). Excess losses (above gains + $3K/year ordinary income offset) carry forward indefinitely. Can save 15-20% on offset capital gains.

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