Tax Loss Harvesting 2026
A losing stock is not a total loss — selling it can shrink your tax bill. Loss harvesting turns paper losses into offsets against gains and up to $3,000 of ordinary income. Here is the 2026 playbook, including the wash-sale rule that trips people up.
Offset gains
1:1
Losses against gains
Ordinary income
$3,000
Per year, after gains
Carryover
Unlimited
Unused losses forward
Wash-sale window
30 days
Before and after sale
What Loss Harvesting Is
Loss harvesting means deliberately selling an investment that has fallen below what you paid, realizing the loss for tax purposes. You then either keep the cash, buy a different (but comparable) investment, or rebuy after the wash-sale window. The realized loss becomes a tax deduction you can use now and in future years.
See your bracket
Understand the rate at which a deduction saves you money.
How It Offsets Gains and Income
The IRS applies your losses in a specific order:
- Short-term losses offset short-term gains first (both taxed at your ordinary rate).
- Long-term losses offset long-term gains (taxed at 0/15/20%).
- Any remaining net loss offsets the other type of gain.
- After all gains are offset, up to $3,000 of excess loss offsets ordinary income (wages).
- Anything left carries forward indefinitely.
Because short-term gains are taxed at your highest rate, harvesting to cancel them first delivers the biggest immediate saving. The $3,000 ordinary-income deduction alone is worth $720 a year at the 24% bracket.
The Wash-Sale Rule
You cannot claim the loss if you buy the same or substantially identical security within 30 days before or after the sale. Violate it and the loss is disallowed — instead, it is added to the cost basis of the repurchased shares. Buying a different fund tracking a similar but not identical index (like swapping one S&P 500 fund for another from a different provider) is generally fine, but be careful with "substantially identical" — it is fact-specific.
When to Harvest
- Year-round, but especially Q4 — before December 31 to count on the current year's return.
- After a market drop — when your positions are below cost.
- In high-income years — when offsetting ordinary income is worth the most.
- Against a big realized gain — like selling a winner, a business sale, or a crypto gain (crypto has no wash-sale rule, giving extra flexibility).
Frequently Asked Questions
Does loss harvesting work in retirement accounts?
No. Losses inside an IRA or 401(k) cannot be harvested — those accounts are tax-deferred and only taxed on withdrawal. Harvesting only works in taxable brokerage accounts.
Can I harvest crypto losses?
Yes, and crypto currently has no wash-sale rule, so you can sell at a loss and rebuy immediately — a unique advantage over stocks.
Is there a limit to how much I can harvest?
No, on the amount of losses you can realize. The limit is only on how much ordinary income a net loss can offset ($3,000/year); excess losses carry forward with no expiration.
Will harvesting trigger an audit?
No, loss harvesting is an ordinary, widely used strategy. The risk is the wash-sale rule — track your repurchases carefully so you do not accidentally disallow a loss.
Sources
- IRS Publication 550 — capital losses, the $3,000 limit, and carryovers.
- IRS — wash-sale rule (30-day window, substantially identical securities).
- IRS Revenue Procedure 2025-32 — 2026 capital gains rates.
This is informational, not investment or tax advice. Wash-sale analysis is fact-specific — consult a tax professional for large trades.