What are some examples of tax-loss harvesting?

What are some examples of tax-loss harvesting?

Tax-loss harvesting involves selling securities at a loss to offset capital gains. For example, if you sold stock A for a $5,000 gain but also sold stock B for a $3,000 loss, you can offset the gain with the loss, reducing your taxable income.

Can you give me a specific scenario?

Sure! Imagine you bought 100 shares of Company X at $50 each, totaling $5,000. Later, the price drops to $30, and you sell those shares for $3,000. You can use that $2,000 loss to offset gains from other investments.

Are there any rules I should be aware of?

Yes, the IRS has a 'wash sale' rule. If you sell a security at a loss and repurchase it within 30 days, you can't claim the loss for tax purposes.

How can I implement this strategy effectively?

To implement tax-loss harvesting effectively, regularly review your portfolio, identify underperforming assets, and consider selling them to realize losses, while ensuring you don't violate the wash sale rule.