Tax-Loss Harvesting: A Year-End Guide for 2026

Tax-loss harvesting means selling an investment that has fallen in value to “realize” the loss, then using it to reduce your taxes. The loss is real either way — harvesting simply turns it into a tax deduction while you keep your money invested. It only works in taxable brokerage accounts, not IRAs or 401(k)s, and the sale has to happen by December 31 to count for 2026.

How capital losses reduce your taxes

1. Losses first offset gains of the same type: short-term losses against short-term gains, long-term losses against long-term gains.
2. Any net loss in one category then offsets net gains in the other.
3. If you still have a net loss, you can deduct up to $3,000 of it against ordinary income such as wages ($1,500 if married filing separately).
4. Whatever is left carries forward to future years, indefinitely, keeping its short- or long-term character.

Short-term gains (on investments held a year or less) are taxed at your ordinary income rate — up to 37% — while long-term gains get 0%, 15%, or 20%. So a loss that offsets a short-term gain or ordinary income is usually worth the most.

A worked example

Say you are single, earn $90,000 in wages, and sold a stock earlier this year for a $10,000 long-term gain. You also hold a fund that is down $13,000. If you sell the fund before December 31:

The full $13,000 loss is used this year: $10,000 against the gain and $3,000 against wages. Had the loss been larger, the rest would carry forward to offset future gains.

Don’t trip the wash-sale rule

The IRS disallows a loss if you buy the same or a “substantially identical” security within 30 days before or after you sell — a 61-day window. The rule also applies to purchases in your IRA and by your spouse. A disallowed loss isn’t gone forever; it is added to the cost basis of the replacement shares. But it won’t help this year.

• Wait 31 days before buying back the same investment, accepting that you’ll be out of the market for a month.
• Or buy something similar but not substantially identical right away — for example, swap one S&P 500 fund for a total-market fund from a different provider.
• Turn off automatic dividend reinvestment in the fund you’re selling, and watch for automatic purchases in your 401(k) or IRA.

The flip side: harvesting gains at 0%

If your income is modest, you may pay no tax at all on long-term gains. For 2026, the 0% rate applies while your taxable income — including the gain — stays at or below $49,450 for single filers, $66,200 for heads of household, or $98,900 for married couples filing jointly. Selling appreciated investments up to that line and buying them right back resets your cost basis higher without any tax. The wash-sale rule applies only to losses, so you can repurchase immediately.

Year-end checklist

• Pull your realized gains and losses for 2026 from your brokerage, including any mutual fund capital gain distributions expected in December.
• Identify positions with losses — and check how long you’ve held them.
• Place trades by December 31; for losses, the trade date is what counts.
• Note any loss carryforward from prior years on last year’s Schedule D.
• Remember state taxes: most states tax capital gains as ordinary income, which makes losses worth even more.

Not sure what your gains will cost? Estimate the bill with the capital gains tax calculator, and see where you fall in the brackets with the income tax calculator.