[{"@context":"https:\/\/schema.org\/","@type":"Article","@id":"https:\/\/moneydoneright.com\/taxes\/personal-taxes\/tax-loss-harvesting\/#Article","mainEntityOfPage":"https:\/\/moneydoneright.com\/taxes\/personal-taxes\/tax-loss-harvesting\/","headline":"What Is Tax-Loss Harvesting?  A CPA Explains.","name":"What Is Tax-Loss Harvesting?  A CPA Explains.","description":"Tax-loss harvesting is a tax-reduction strategy that involves selling stocks at a loss in...","datePublished":"2022-11-01","dateModified":"2022-11-01","author":{"@type":"Person","@id":"https:\/\/moneydoneright.com\/author\/logan-allec\/#Person","name":"Logan Allec, CPA","url":"https:\/\/moneydoneright.com\/author\/logan-allec\/","identifier":4,"image":{"@type":"ImageObject","@id":"https:\/\/secure.gravatar.com\/avatar\/6e74dd0453a5871d1dcfde6d40d9494765ca8bfdb01927cefee4564d4bee9075?s=96&d=mm&r=g","url":"https:\/\/secure.gravatar.com\/avatar\/6e74dd0453a5871d1dcfde6d40d9494765ca8bfdb01927cefee4564d4bee9075?s=96&d=mm&r=g","height":96,"width":96}},"publisher":{"@type":"Organization","name":"Money Done Right","logo":{"@type":"ImageObject","@id":"https:\/\/moneydoneright.com\/wp-content\/uploads\/Money-Done-Right-Personal-Finance-and-Investing-Blog.png","url":"https:\/\/moneydoneright.com\/wp-content\/uploads\/Money-Done-Right-Personal-Finance-and-Investing-Blog.png","width":488,"height":60}},"image":{"@type":"ImageObject","@id":"https:\/\/moneydoneright.com\/wp-content\/uploads\/Tax-Loss-Harvesting.jpg","url":"https:\/\/moneydoneright.com\/wp-content\/uploads\/Tax-Loss-Harvesting.jpg","height":460,"width":1900},"url":"https:\/\/moneydoneright.com\/taxes\/personal-taxes\/tax-loss-harvesting\/","about":["Personal Taxes"],"wordCount":815,"articleBody":"Tax-loss harvesting is a tax-reduction strategy that involves selling stocks at a loss in your portfolio to offset current- and future-year capital gains in your portfolio.Table of ContentsToggleTax-Loss Harvesting ExampleIs Tax-Loss Harvesting Right For You?1. Consider the wash-sale rules.2. Consider your long-term capital gains tax rate.3. Consider your overall investment strategy.Tax-Loss Harvesting ExampleFor example, let\u2019s say that you purchase 10,000 shares of two different individual stocks \u2014 Stock A and Stock B \u2014 for the price of one dollar per share in a taxable brokerage account.So you\u2019ve invested $10,000 in Stock A and $10,000 in Stock B.Let\u2019s say the value of your investment in Stock A rises to $20,000, but the value of your investment in Stock B drops to $4,000.You believe that your portfolio is at this point overallocated to Stock A, so you sell off half of your position in Stock A for a capital gain of $5,000.At the same time, you believe that Stock B is a bad investment overall and that you want to cut your losses.So you sell your entire position in Stock B for a capital loss of $6,000.Assuming these transactions are the only two capital transactions you engaged in during the year, your $6,000 capital loss on the sale of Stock B would first be netted against your $5,000 capital gain on the sale of Stock A.This means that you would not be subject to any capital gains tax during the year.You could then deduct the remaining $1,000 loss in Stock B against your ordinary income for the year.If you are in, say, the 22% tax bracket, and you held Stock A for a year or less, your \u201charvesting\u201d of your loss in Stock B could result in a $1,320 reduction in your federal tax liability for the year with additional potential tax savings at the state income tax level.Is Tax-Loss Harvesting Right For You?Given that the tax savings that tax-loss harvesting could generate are quite real, it can certainly be a good idea in some circumstancesBut like most tax strategies, it\u2019s not appropriate for everyone.Here are some questions to ask yourself when determining if tax-loss harvesting is right for you:1. Consider the wash-sale rules.Within the last 30 days, did you purchase the investment you intend on tax loss harvesting?Or do you intend to repurchase the investment within 30 days of selling it for a loss?Answering \u201cyes\u201d to either of these questions could mean that you are prevented from taking a tax loss on the sale of the investment, thus negating any tax-loss harvesting benefit you were planning on taking.2. Consider your long-term capital gains tax rate.Before capital losses are applied \u2014 up to $3,000 \u2014 against your ordinary income, they are first applied against your capital gains during the year.And gains on capital assets, like those in your investment portfolio, that are held for longer than one year qualify for long-term capital gain treatment for tax purposes.Instead of being taxed at a taxpayer\u2019s normal income tax rates, they are taxed at special 0%, 15%, and 20% rates based on the taxpayer\u2019s taxable income (including all capital gains themselves).These rates for 2022 are shown in the table below..simple_table-50327 table tr th{\ttext-align: center;\t\t}.simple_table-50327 table tr td{\ttext-align: center;\t\t}Tax Filing Status0% Rate15% Rate20% RateSingle$0 - $41,675$41,676 - $459,750$459,751+Married Filing Jointly$0 - $83,350$83,351 - $517,200$517,201+Married Filing Separately$0 - $41,675$41,676 - $258,600$258,601+Head of Household$0 - $55,800$55,801 - $488,500$488,501+So let’s say in 2022 your filing status is married filing jointly, and your only sources of income for the year are your $50,000-per-year job, your spouse’s $40,000-per-year job, and $15,000 in long-term capital gains.Assuming you don’t have any adjustments to your income and you and your spouse take the standard deduction, your taxable income would be $79,100, calculated as follows$50,000 Spouse A Wages$40,000 Spouse B Wages$15,000 Long-Term Capital Gains– $25,900 Standard Deduction$79,100 Taxable IncomeIn this case, since your taxable income falls in the taxable income range of $0 – $83,350 for the 0% long-term capital gains rate for the married filing jointly filing status, you would owe absolutely no federal taxes on your $15,000 long-term capital gains.Nevertheless, any capital losses that you recognize during the year via tax-loss harvesting will still be applied against this $15,000 in long-term capital gains \u2014 but they will not generate any tax benefit because your gains are already in the 0% long-term capital gains tax bracket.Note that while you still may benefit from the tax-loss harvesting for state income tax purposes, it may be better to \u201csave\u201d these losses \u2014 if they still exist \u2014 for when you will enjoy a federal benefit for them as well.3. Consider your overall investment strategy.One should rarely “let the tax tail wag the dog,” so to speak; always consider your tax strategies in light of your overall financial picture.If selling your currently “losing” stocks at a loss doesn’t really fit well into your big-picture investment strategy, perhaps you should consult with a qualified financial advisor before making any rash moves."},{"@context":"https:\/\/schema.org\/","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"name":"Taxes","item":"https:\/\/moneydoneright.com\/taxes\/#breadcrumbitem"},{"@type":"ListItem","position":2,"name":"Personal Taxes","item":"https:\/\/moneydoneright.com\/taxes\/\/personal-taxes\/#breadcrumbitem"},{"@type":"ListItem","position":3,"name":"What Is Tax-Loss Harvesting?  A CPA Explains.","item":"https:\/\/moneydoneright.com\/taxes\/personal-taxes\/tax-loss-harvesting\/#breadcrumbitem"}]}]