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Selling losing investments to offset taxes on your gains.
Why It Matters
Tax-loss harvesting turns lemons into lemonade. If you have $5,000 in gains and $3,000 in losses, you only pay tax on $2,000. Robo-advisors like Betterment and Wealthfront do this automatically and claim it adds 1%+ annually.
Key Points
- Losses offset gains dollar-for-dollar; excess losses offset up to $3,000 of regular income
- Watch the wash-sale rule: can't buy the same or 'substantially identical' security within 30 days
- Unused losses carry forward indefinitely - they never expire
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Tax-Loss Harvesting
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Common Questions
Selling losing investments to offset taxes on your gains. Tax-loss harvesting turns lemons into lemonade. If you have $5,000 in gains and $3,000 in losses, you only pay tax on $2,000.
Tax-loss harvesting turns lemons into lemonade. If you have $5,000 in gains and $3,000 in losses, you only pay tax on $2,000. Robo-advisors like Betterment and Wealthfront do this automatically and claim it adds 1%+ annually.
Losses offset gains dollar-for-dollar; excess losses offset up to $3,000 of regular income
Watch the wash-sale rule: can't buy the same or 'substantially identical' security within 30 days
Unused losses carry forward indefinitely - they never expire