10 Tips for Harvesting Investment Losses

Tax-loss harvesting allows investors to offset taxable income by selling underperforming assets in non-retirement accounts, potentially reducing annual adjusted gross income by up to $3,000. Successfully executing this strategy requires navigating the wash sale rule, which prohibits claiming a loss if the same or substantially identical security is purchased within 30 days before or after the sale. Beyond harvesting losses, investors can optimize their tax burden by strategically managing gains. Donating long-term appreciated assets to qualified charities avoids capital gains taxes while resetting the cost basis, and passing assets to heirs at death provides a step-up in basis, effectively eliminating embedded capital gains. Proper documentation of cost basis and holding periods remains essential, as brokers may not always have accurate records for older investments, necessitating careful personal record-keeping to ensure tax compliance.