Tax-Loss Harvesting: How to Cut Your Tax Bill by Selling Losers

When you sell an investment for less than you paid, you’ve created a capital loss, a reduction in value that the IRS lets you use to lower your taxable income. This is called tax-loss harvesting, a smart, legal way to offset capital gains and reduce your tax bill. Also known as tax harvesting, it’s not about timing the market—it’s about cleaning up your portfolio while saving money.

Tax-loss harvesting works because the IRS lets you use losses to cancel out gains. If you made $5,000 in profits from selling stocks this year, you can sell something that lost $5,000 and owe $0 in capital gains tax. If your losses are bigger than your gains, you can deduct up to $3,000 from your regular income. Any extra losses roll over to next year. It’s not magic—it’s math. And it’s something you can do every year, even if you’re not actively trading. Many people miss this because they hold onto losers hoping they’ll bounce back. But holding a loser for emotional reasons doesn’t change your tax bill. Selling it and replacing it with something similar (but not identical) keeps your portfolio on track while unlocking savings.

This strategy ties directly into how you manage your capital gains tax, the tax you pay on profits from selling investments. High turnover funds, for example, often trigger big gains you didn’t ask for. That’s why ETFs and low-turnover mutual funds are better for taxable accounts—they create fewer taxable events. Tax-loss harvesting complements this by letting you actively manage what you do owe. It’s also linked to tax-efficient investing, the practice of structuring your portfolio to minimize taxes over time. Where you hold bonds, stocks, and REITs matters. Holding high-growth assets in Roth accounts and income-heavy ones in taxable accounts makes tax-loss harvesting even more powerful.

You’ll find posts here that show you how to spot opportunities without triggering wash sale rules, how to use automated tools to do it for you, and how to combine it with Roth conversions or dividend reinvestment plans. Some strategies work best for investors with $50K+ in taxable accounts. Others are simple enough for beginners who just bought their first ETF. There’s no one-size-fits-all, but the core idea is the same: turn your losses into leverage. Don’t let the IRS keep more than it should. The tools, examples, and step-by-step guides below show you exactly how to do it—without the jargon, without the fluff, and without risking your long-term plan.