As we head into the final quarter of the year, it’s a great time to review your investments and consider strategies that can help optimize your financial outcomes before December 31. One opportunity I proactively evaluate for my clients throughout the year is tax loss harvesting.
What is tax loss harvesting?
It’s the process of selling an investment in your taxable account that has declined in value to realize a loss. These realized losses can offset capital gains from other investments—and potentially reduce your tax bill.
Why it matters:
- Capital losses can offset capital gains dollar-for-dollar.
- If losses exceed gains, up to $3,000 of the remaining loss can offset ordinary income.
- Unused losses can carry forward to future tax years.
Avoiding the Wash Sale Rule
If you sell an investment for a loss, be careful not to repurchase the same or a “substantially identical” security within 30 days before or after the sale. This triggers the wash sale rule and disallows the loss. I help clients navigate this by identifying alternative investments that maintain market exposure without violating the rule.
