Tax loss harvesting

Deliberately realising a loss so it can be set against a gain, reducing the tax owed in that year.

Example

Selling a holding that is down before a tax year ends, where the rules permit the loss to offset a gain already taken.

Important

The conditions are specific and differ by country, and repurchasing something substantially identical too soon commonly voids the benefit entirely. Confirm the rules locally before acting, not after.

Related terms

• Capital loss — The result of selling an asset for less than it cost. In many systems a realised loss can be set against a realised gain to reduce the tax due.
• Taxable event — The moment a tax system treats something as having happened - most commonly a sale, rather than an increase in value while you still hold the asset.
• Portfolio turnover — The proportion of a portfolio bought and sold within a year. Zero means nothing was sold; one means roughly the whole portfolio changed hands.

Lessons that explain it

• Turnover, the taxable event, and the cost of selling — In most systems a gain is taxed when it is realised, not when it happens. That single rule means how often you trade changes your return even when every trade is correct. (11 min)

All 578 terms in the Investing glossary