Icon Close Icon Close check-mark black-lock

Tax-Loss Harvesting

What is Tax-Loss Harvesting?

Tax-loss harvesting is a portfolio management technique where you sell an investment at a loss to offset gains you’ve realized. Tax-loss harvesting reduces your overall tax burden by reducing your net capital gain. This strategy is particularly beneficial for offsetting short-term capital gains, which are taxed at the federal income tax rate and at a higher rate than long-term capital gains.

Tax-loss harvesting is one of the critical tax optimization strategies we use in our wealth management services. Because taxes can significantly reduce your portfolio return, we aim to optimize your portfolio for tax purposes.

Learn More

Personal Strategy

Tax-loss harvesting is part of a three-pronged approach that also includes asset location and tax efficiency:

First, we strategically place investments in their most tax-efficient account types. This strategy is ideal for investors with both taxable and tax-advantaged retirement accounts in their portfolios.

Then we employ tax-loss harvesting, where we intentionally sell securities at a loss to turn an unrealized loss into a realized loss. Not only can this strategy offset any realized capital gains you have, but it can also create a capital loss deduction of up to $3,000 (IRS limit, subject to change).

Finally, we build your portfolio using individual stocks and tax-efficient ETFs rather than mutual funds to maximize tax efficiency.

What To Expect

When you sell an asset for a gain in a taxable brokerage account, you’re likely to be subject to capital gains taxes. Assets held for less than one year are considered short-term capital gains and are taxed at your normal income tax rate. Assets held for more than one year are taxed at long-term capital gains rates of 0%, 15%, or 20%, depending on your taxable income. (Rates are set by the IRS and are subject to change.)

But capital gains can be offset by capital losses, which are the result of selling an asset at a loss. In fact, not only can you offset capital gains, but the IRS allows you to deduct up to $3,000 in net capital losses — in other words, your capital losses exceed your capital gains.

Tax-loss harvesting is a strategy to intentionally create a capital loss to offset a capital gain. For example, let’s say you sold a security for a capital gain. You might sell another security at a loss to turn an unrealized loss into a realized loss. Doing so would reduce your net capital gains, and therefore, reduce the capital gains taxes you’ll owe.

You may then use the proceeds of the sale to reinvest in a similar security, but there’s a catch. The federal government’s wash sale rule prevents investors from selling a security and then buying a new “substantially identical” security within 30 days. However, you can either reinvest those proceeds into another security that isn’t considered substantially identical or simply wait over 30 days to purchase a substantially identical security.

While you won’t notice a significant difference in your portfolio over the long run with tax-loss harvesting, you may enjoy a smaller capital gains tax bill at the end of the year.

Fee Structure

One of the downsides of tax-loss harvesting is that it can result in increased transaction fees from buying and selling securities. But at Personal Capital, there are no commissions and our tax-loss harvesting services are included in the cost of our wealth management services. Our all-inclusive wealth management fee starts at 0.89% for wealth management clients with portfolios of less than $1 million.

Additional Resources

Tax-loss harvesting can be a complex process. But it’s made simpler with knowledge and support. Check out these resources to keep learning, and sign up for your free Personal Capital Dashboard to improve your financial management.

Start For Free

Next, let's confirm your information.

This way, we can provide you with a secure login, confirm your identity or contact you about your account.

Password must be 8-64 characters.

*By providing your information and clicking Next, you agree to our Terms of Use and Privacy Policy. You also elect to receive updates, newsletters, and offers from Personal Capital. This site is protected by reCAPTCHA, and Google’s Privacy Policy and Terms of Service apply.

Please enter a valid 10 digit U.S. phone number.

*By providing your phone number and clicking Next, you agree to receive marketing calls and text messages to the phone number provided, including those made using auto dialers, prerecorded voice messages, and other electronic means. Consent is not required for purchase, and you may opt out at any time. Message and data rates may apply. See Terms of Use and Privacy Policy.

Personal Capital Advisors Corporation ("PCAC") compensates ("Company") for new leads. ("Company") is not an investment client of PCAC.

["Author"] has entered into an agreement with Personal Capital Corporation ("Personal Capital"), through which Author will be paid up to $200 for each person who uses webpage to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital's Free Financial Dashboard.  The “Author”, due to such compensation, has an incentive to recommend Personal Capital, resulting in a material conflict of interest. Author is not affiliated with Personal Capital and Author's services consist solely of referrals of prospective clients. As a result of this arrangement Author may financially benefit from referring qualified leads to Personal Capital. No fees or other amounts will be charged to investors by Author or Personal Capital as a result of the arrangement. Investors that are referred by Author to Personal Capital and subscribe for investment advisory services provided by Personal Capital’s subsidiary, Personal Capital Advisors Corporation (“PCAC”), will not pay increased management fees or other similar compensation to Author, Personal Capital or PCAC as a result of the arrangement. This  agreement with Author does not imply a sponsorship, endorsement, approval, investigation, verification, or monitoring by PCAC of the contents of the Author's website. Personal Capital is not responsible for the content of any website owned by a third party that may be linked to Personal Capital's website regardless of whether the link is provided by PCAC or a third party. Personal Capital does not prepare or maintain, has not and will not review or update, and does not guarantee the accuracy, timeliness, completeness, suitability, reliability, or usefulness of any information contained on a linked third-party website.

Advisory services are offered for a fee by PCAC, a wholly owned subsidiary of PCC, an Empower company. PCAC is a registered investment adviser with the Securities Exchange Commission ("SEC"). SEC registration does not imply a certain level of skill or training. Past performance is not a guarantee of future return. Investing involves risk. Personal Capital and the Personal Capital logo are trademarks of PCC. All other trademarks, trade names, or service marks used or mentioned belong to their respective owners.