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Tax-Loss Harvesting Before December 31: The Basic Math and the Wash-Sale Rule

By Smart Budget Sheets November 10, 2026
Year-end tax-loss harvesting basics and the wash-sale rule.

If an investment in a regular taxable brokerage account is worth less than you paid, selling it before year-end can lower this year’s tax bill. That is tax-loss harvesting. It is simple, with one rule that trips people up.

How the loss is used

  1. Losses first offset capital gains from the same year.
  2. If losses are bigger than gains, up to $3,000 can offset ordinary income ($1,500 if married filing separately).
  3. Anything left carries forward to future years.

Example: you have $2,000 of gains from earlier sales and a fund that is down $6,000. Selling it offsets the $2,000 gain, then $3,000 of income, and $1,000 carries forward. In a 22% bracket, the $3,000 against income alone is worth about $660.

The wash-sale rule

If you buy the same or a “substantially identical” investment within 30 days before or after the sale, the loss is disallowed for now and added to the cost of the new shares. That 61-day window covers purchases in your other accounts too, including an IRA, and automatic reinvested dividends.

Common approach: sell and buy a similar but not identical fund, so you stay invested, then decide after 31 days whether to switch back.

Timing

  • The sale needs to happen by the last trading day of the year (trade date counts).
  • Only taxable accounts. Losses inside an IRA or 401(k) do not count.

Is it worth it?

The tax saving is real, but harvesting lowers your cost basis, so part of the saving is a deferral. It helps most when you are in a higher bracket now, have gains to offset, or might later sell in a lower bracket.

Write each sale down: date, amount, loss and replacement fund. It makes tax time easier.

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General information, not financial advice. Figures are rounded examples.

#personalfinance #budgeting #investing
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