Tax-Loss Harvesting
Selling investments at a loss to offset capital gains taxes owed on other investments, while maintaining overall portfolio strategy.
Example
Selling a losing position for a $3,000 loss can offset $3,000 of capital gains elsewhere in your portfolio that year, reducing your tax bill, while you reinvest the proceeds into a similar (not identical) investment to stay in the market.
Common Misconception
The IRS "wash sale" rule blocks the tax deduction if you buy back the same or a "substantially identical" security within 30 days before or after the sale — a common mistake is re-buying the exact same fund too soon and losing the deduction.
Why It Matters
Tax-loss harvesting is one of the few investing moves that can improve your after-tax return without changing your actual market exposure much, which is why it's a standard year-end planning tactic.