Tax-loss harvesting (TLH) is a disciplined way to reduce your tax bill by realizing investment losses to offset gains. In 2025, the fundamentals remain the same—but execution details matter.
How TLH Works
- Identify positions with unrealized losses in taxable accounts.
- Sell those positions to realize the capital loss.
- Immediately buy a similar—but not substantially identical—replacement fund to keep market exposure.
Wash Sale Rule
A wash sale occurs if you buy a substantially identical security within 30 days before or after the sale that generated the loss. Violations disallow the loss and adjust cost basis instead.
Replacement Fund Ideas
- S&P 500 index fund A → Total Market index fund B
- Total International fund A → Developed ex-US fund B
- Factor ETF A → Broad market ETF B
Capital Gains Netting
- Short-term losses first offset short-term gains; same for long-term.
- Excess losses can offset up to $3,000 of ordinary income annually in the U.S.
- Unused losses carry forward indefinitely.
Automation Options
Robo-advisors and some brokerages can automate thresholds and replacement pairs. If doing it yourself, set alerts and document replacements to avoid wash sales across accounts.
Track realized gains and losses in Vine Wealth Tracking and use our Tax tools to plan quarterly estimates.
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