Written by - What is Tax-Loss Harvesting? Tax-loss harvesting involves selling investments at a loss to offset capital gains taxes from other investments.
- How Tax-Loss Harvesting Works:
- Realizing Losses: You sell an investment that has decreased in value and realize the loss for tax purposes.
- Offsetting Gains: The loss can be used to offset gains from other investments, reducing your taxable income.
- Wash-Sale Rule: Be aware of the IRS wash-sale rule, which prevents you from claiming a loss if you buy the same or substantially identical security within 30 days.
- Benefits of Tax-Loss Harvesting:
- Reducing Tax Liability: Tax-loss harvesting can lower your capital gains tax liability, allowing you to keep more of your returns.
- Improved After-Tax Returns: By reducing your tax burden, tax-loss harvesting can improve your overall investment returns.
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