This tax loss harvesting estimator helps investors calculate potential tax savings from realizing capital losses. It accounts for short-term and long-term gains/losses, loss carryovers, and tax rates to determine taxable gains, deductions, and carryforwards. Use it to plan tax-efficient portfolio rebalancing.
Tax Loss Harvesting Estimator
Note: Input recognized capital gains and losses (after any wash sale disallowances).
Current Year Capital Activity
Capital Loss Carryovers
Tax Rates and Filing Status
How to Use This Tool
Enter your short-term and long-term capital gains and losses for the current year, along with any capital loss carryovers from previous years. Input your applicable tax rates for short-term and long-term gains, and select your filing status. Click "Calculate" to see the breakdown of your net capital gains, tax due, and any potential ordinary income deduction or carryforward.
Formula and Logic
The calculator follows the U.S. tax rules for capital gains and losses:
- Net short-term gains/losses are calculated by subtracting short-term losses and short-term loss carryovers from short-term gains.
- Net long-term gains/losses are calculated similarly.
- Net short-term and net long-term results are then offset against each other. Any remaining net capital gain is taxed at the appropriate rate (short-term gains at ordinary income tax rates, long-term gains at the lower long-term rate).
- If the offset results in a net capital loss, up to $3,000 ($1,500 for married filing separately) can be deducted against ordinary income. The remaining loss is carried forward to future years.
Practical Notes
Consider the following when using this tool:
- Wash Sale Rule: If you sell a security at a loss and buy a substantially identical one within 30 days before or after the sale, the loss is disallowed for tax purposes and added to the basis of the new purchase. Ensure your input losses are the recognized amounts after any wash sale adjustments.
- Carryover Losses: Capital loss carryovers from previous years are used in the order they were incurred (first-in, first-out). This tool assumes you are using all available carryovers.
- Tax Rates: Short-term capital gains are taxed at ordinary income tax rates, which can be as high as 37% (plus the 3.8% Net Investment Income Tax for high earners). Long-term gains have lower rates (0%, 15%, or 20% depending on income). Enter your expected effective rates.
- State Taxes: This calculator does not account for state capital gains taxes, which vary by state.
- Timing: Tax loss harvesting is typically done toward the end of the tax year, but you can harvest losses any time during the year.
Why This Tool Is Useful
Tax loss harvesting can be a powerful strategy to reduce your tax bill. By realizing losses, you can offset capital gains and even deduct a portion against ordinary income. This tool helps you estimate the immediate tax benefit and plan for future years by calculating carryforwards. It's especially useful for investors with taxable brokerage accounts who are rebalancing or harvesting losses to offset gains from other investments.
Frequently Asked Questions
What is the wash sale rule and how does it affect my losses?
The wash sale rule disallows a capital loss if you purchase a substantially identical asset within 30 days before or after the sale. The disallowed loss is added to the cost basis of the new asset, so you'll eventually get the tax benefit when you sell that asset. When entering losses in this tool, only include losses that are not subject to the wash sale rule.
Can I carry forward unlimited capital losses?
Yes, there is no limit on the amount of capital loss you can carry forward to future years. However, each year you can only deduct up to $3,000 ($1,500 for married filing separately) against ordinary income. Any unused loss carries forward indefinitely until used or until you die.
Do I have to use my oldest loss carryovers first?
Yes, the IRS requires you to use capital loss carryovers in the order they were incurred (first-in, first-out). This tool assumes you are applying all available carryovers in the correct order. If you have multiple years of carryovers, you should apply the oldest first.
Additional Guidance
For complex situations, such as having both short-term and long-term carryovers from multiple years, consider consulting a tax professional. This tool provides estimates based on the information you input and the standard tax rules. It does not account for all possible tax situations, such as the Net Investment Income Tax, state taxes, or interactions with other deductions. Always verify your tax calculations with official IRS forms or a qualified advisor.