What are some effective strategies for tax loss harvesting?

What are some effective strategies for tax loss harvesting?

Tax loss harvesting involves selling securities at a loss to offset capital gains. Some strategies include: 1. Identify losing investments. 2. Sell them to realize the loss. 3. Reinvest in similar assets to maintain your portfolio's allocation. 4. Be mindful of the wash-sale rule.

Can you explain the wash-sale rule?

The wash-sale rule prevents you from claiming a tax deduction for a security sold at a loss if you repurchase the same or substantially identical security within 30 days before or after the sale.

How much can I offset with tax loss harvesting?

You can offset capital gains with your losses. If your losses exceed your gains, you can use up to $3,000 of the excess loss to offset ordinary income. Any remaining losses can be carried forward to future years.

Are there any risks involved in tax loss harvesting?

Yes, risks include market volatility, potential loss of future gains, and the possibility of triggering the wash-sale rule. It's important to carefully consider your investment strategy.