Tax loss harvesting is one of the few moves in investing where you can turn a paper bruise into real money. When you sell an investment for less than you paid, that realized loss does not just disappear on your tax return — it can cancel out capital gains you made elsewhere, trim up to $3,000 of ordinary income per year, and carry forward into future decades to lower your bill later. This tax loss harvesting calculator estimates exactly how much of a tax break your realized losses produce, step by step, so you can decide whether harvesting a losing position is worth the trade-off.
Drag the sliders and every figure updates instantly: how much of your gains the losses absorb, how much spills into ordinary income, what gets carried forward, and the dollar tax savings at your bracket.
How to Use
- Enter your Realized Capital Gains This Year — the net profit you have already locked in by selling winners. If you have not sold anything at a gain yet, put 0 and the losses will flow straight into the ordinary-income offset instead.
- Add your Realized Investment Losses This Year — the net losses from selling positions that are down. Only realized (actually sold) losses count; paper losses on holdings you still own do not help until you sell.
- Set your Marginal Ordinary Income Tax Rate. This is your top federal bracket (10%, 12%, 22%, 24%, 32%, 35%, or 37%). The ordinary-income portion of your loss deduction saves at this rate, which is usually higher than the long-term capital gains rate.
- Optionally enter your Total Taxable Portfolio Value. The calculator uses it to show what your one-year tax savings mean as a percentage lift to your net worth.
The result card then breaks the math into four lines: gains offset by losses, the ordinary-income deduction (capped at $3,000), any loss carried forward to next year, and your estimated tax savings.
How the IRS Netting Works
US tax rules (IRS Topic No. 409) force losses through a strict order of operations:
- First, losses offset capital gains. If you have $25,000 of losses and $20,000 of gains, the losses wipe out the entire gain.
- Second, leftover losses offset ordinary income, up to $3,000 per year ($1,500 if you are married filing separately). This is where a high marginal bracket makes harvesting especially valuable.
- Third, anything left over carries forward indefinitely. Unused losses do not expire — they roll into next year, where they repeat the same three-step process.
The tax savings come from multiplying the losses you actually use by your marginal rate:
Tax savings = (gains offset + ordinary-income offset) × marginal tax rate
In the standard example — $20,000 of gains, $25,000 of losses, 24% bracket — the losses absorb all $20,000 of gains, $3,000 of the remaining $5,000 drops against ordinary income, $2,000 carries forward, and your estimated tax savings are $5,520 this year. The carried-forward $2,000 is not lost; it simply waits to offset gains or income in a future tax year.
Wash Sale Rule: The Catch
Harvesting is free money only if you follow the wash sale rule. If you buy a "substantially identical" security within 30 days before or after the loss sale, the loss is disallowed and the deduction is blocked. To stay invested while claiming the loss, investors typically buy a similar but not identical replacement — for example, swapping a US total-market ETF for a S&P 500 ETF, or pausing 31 days before repurchasing the original holding. Always confirm the replacement is not "substantially identical" with your tax preparer.
Examples
Example 1 — The textbook harvest. A investor in the 24% bracket realizes $20,000 in gains from a winning stock and $25,000 in losses from a tech ETF that dropped. The calculator shows $20,000 of gains offset, $3,000 of ordinary income offset, $2,000 carried forward, and $5,520 of tax savings. On a $150,000 portfolio that is roughly a 3.7% one-year uplift — purely from a tax maneuver, not from market performance.
Example 2 — No gains this year. With $10,000 of gains and $0 realized losses, the result card shows every offset at $0 and the full $10,000 gain remains taxable. This is the nudge: if you are sitting on losing positions, selling them turns that $10,000 taxable gain into $0.
Example 3 — A $1M+ rebalance. A high-net-worth investor realizes $1,200,000 of gains in the 32% bracket and harvests $400,000 of concentrated-stock losses. The losses fully absorb $400,000 of gains, producing $128,000 of tax savings, while $800,000 of gains remains taxable. Because the losses are fully consumed by gains, there is no ordinary-income offset and nothing to carry forward.
FAQ
What is tax loss harvesting?
Tax loss harvesting is deliberately selling investments that are down to turn paper losses into realized losses, which then offset capital gains and up to $3,000 of ordinary income on your tax return. It does not create spending money — it defers and reduces tax, effectively giving your remaining investments more capital to compound.
How much can a capital loss offset?
Realized capital losses first offset an unlimited amount of realized capital gains. After gains are wiped out, up to $3,000 of excess losses can offset ordinary income each year (or $1,500 if married filing separately). Any amount beyond that carries forward to future tax years with no expiration.
Do losses carry forward forever?
Yes. Unused capital losses carry forward indefinitely into future tax years. There is no expiration date. A large harvested loss can shelter gains for many years — which is why investors sometimes harvest big losses after a market crash.
What is the wash sale rule and how do I avoid it?
The wash sale rule disallows a loss if you buy a substantially identical security within 30 days before or after selling at a loss. To avoid it, either wait 31 days before repurchasing, or buy a similar but not identical index fund (e.g., a total-market fund instead of the exact same S&P 500 fund) to keep your market exposure.
Is tax loss harvesting worth it in a low bracket?
Less so. The savings equal the losses you use times your marginal rate, so a 12% bracket saves less per dollar of loss than a 32% bracket. Still, the carryforward benefit and the ability to defer tax can make it worthwhile — especially if you expect to be in a higher bracket later, when the carried-forward loss becomes more valuable.
Does it work in a retirement account?
No. Tax loss harvesting only applies to taxable brokerage accounts. Gains and losses inside a 401(k) or IRA are not taxed annually, so there is no gain to offset and no deduction to claim. Focus harvesting on your taxable investment accounts.
Disclaimer
This tax loss harvesting calculator is provided for informational purposes only and does not constitute tax, legal, or investment advice. Estimates use simplified federal rules and do not account for state taxes, short- versus long-term holding periods, net investment income tax, or the wash sale rule. Actual results depend on your individual tax situation. Consult a qualified tax professional before executing any loss-harvesting transaction.