Tax-Loss Harvesting Made Simple

What is Tax-Loss Harvesting?

Selling losing investments to offset capital gains taxes.

Simple math:

• Gain: +$10,000 (taxed at 20% = $2,000 tax)

• Loss: -$5,000 (offsets gain)

• Net taxable: $5,000

• Tax saved: $1,000

Legal. Strategic. Underutilized.

When to Harvest Losses

Best Times:

1. December (year-end tax planning)

2. After market corrections (opportunity spike)

3. Before realizing large gains (strategic offset)

Don't Wait:

• Losses expire annually (use it or lose it)

• Market may recover (miss opportunity)

How It Works: Step-by-Step

Step 1: Identify losers

• Down 10%+ from purchase

• No recovery expected short-term

• Better alternatives available

Step 2: Sell position

• Lock in loss

• Generate tax deduction

Step 3: Avoid wash sale

• Don't buy same asset within 30 days

• IRS disallows loss if you do

• Buy similar (not identical) asset

Step 4: Reinvest proceeds

• Stay invested

• Maintain market exposure

• Switch to correlated asset

Example: Real Numbers

Scenario:

• Bought TSLA at $300/share (100 shares = $30,000)

• Current price: $240/share

• Loss: -$6,000

Action:

1. Sell TSLA → lock $6,000 loss

2. Wait 31 days (avoid wash sale)

3. Buy back TSLA or switch to similar EV stock

4. Offset $6,000 in gains elsewhere

Tax savings: $1,200-$1,800 (depending on bracket)

Advanced Strategies

Strategy 1: Loss Carry-Forward

Can't use all losses this year? Carry forward indefinitely.

Rules:

• $3,000 max annual deduction vs. ordinary income

• Unlimited vs. capital gains

• Never expires

Strategy 2: Pair with Rebalancing

Combine tax-loss harvesting with portfolio rebalancing.

Process:

1. Sell losers (tax benefit)

2. Sell winners (rebalance)

3. Offset gains with losses

4. Reinvest in target allocations

Strategy 3: ETF Swaps

Avoid wash sales by swapping similar ETFs.

Example:

• Sell VTI (Total Market ETF)

• Buy SCHB (similar exposure)

• Maintain market position

• Lock tax loss

Common Mistakes

Don't:

• Forget 30-day rule (wash sale violation)

• Sell everything in December (rushed decisions)

• Ignore state taxes (some states don't recognize federal losses)

• Skip cost basis tracking (record-keeping failure)

Do:

• Plan year-round

• Track carefully

• Automate where possible

Tools & Automation

QuantEdge features:

• Automatic loss identification

• Wash sale warnings

• Tax-optimized rebalancing

• Gain/loss projections

Other tools:

• TurboTax (tax filing)

• Personal Capital (tracking)

• Betterment (auto tax-loss harvesting)

Summary

Tax-loss harvesting = free money. Reduce taxes, stay invested, improve after-tax returns by 1-2% annually.

Action checklist:

1. Review portfolio for losses

2. Identify harvest candidates

3. Plan replacement assets

4. Execute before year-end

5. Track for tax filing

Bonus: Combine with Roth conversions for even larger tax savings.

Ready to optimize your portfolio? Start your free trial and let QuantEdge handle the complex tax math for you.