What are the tax implications of harvesting investments?

What are the tax implications of harvesting investments?

Harvesting investments, often referred to as tax-loss harvesting, involves selling securities at a loss to offset capital gains. This can reduce your overall tax liability.

How does it work in practice?

In practice, you sell an investment that has lost value, which creates a capital loss. This loss can then be used to offset gains from other investments, potentially lowering your taxable income.

Are there any limits to how much I can harvest?

Yes, you can offset capital gains with losses, but if your losses exceed your gains, you can only deduct up to $3,000 against other income per year. Any remaining losses can be carried forward to future years.

What should I consider before harvesting?

Consider your overall investment strategy, the potential for future gains, and the wash-sale rule, which disallows claiming a loss if you repurchase the same security within 30 days.