How the loss is used
- Losses offset capital gains first: short-term against short-term, long-term against long-term, then across types.
- If losses exceed gains, up to $3,000 of the excess ($1,500 married filing separately) reduces ordinary income such as wages.
- Anything left carries forward to future years with no expiration.
This works only in a taxable brokerage account. There is nothing to harvest inside a 401(k), IRA, or HSA, because gains and losses there are never reported.
Short-term gains are taxed as ordinary income, up to 37%. Long-term gains are taxed at 0%, 15%, or 20% by taxable income; for 2026 the 0% rate covers taxable income up to $49,450 single and $98,900 joint. A loss is worth the most when it cancels a short-term gain or ordinary income.
The wash-sale rule
You cannot claim the loss if you buy the same or a substantially identical security within 30 days before or after the sale, a 61-day window. It applies across all your accounts, including your IRA and your spouse's accounts, and a dividend reinvestment inside the window counts as a purchase.
The usual workaround is to buy a similar but not identical fund the same day: a total-market fund in place of a large-cap fund, or a fund that tracks a different broad index. Or wait 31 days and buy the original back.
Crypto is the exception. The wash-sale rule covers stocks and securities, and crypto is property, so you can sell a coin at a loss and buy it back the same day. That is still true for 2026.
Example
You sold a fund in March for a $9,000 long-term gain. In October another fund is down $12,000, so you sell it and buy a similar fund the same day. The $12,000 loss cancels the $9,000 gain and $3,000 comes off your salary. At the 15% gains rate and the 22% ordinary rate, that is $1,350 plus $660, about $2,000 of federal tax saved this year.
When it is worth doing
- You have realized gains this year or a large rebalance coming.
- You are in the 22% bracket or higher (taxable income over $50,400 single, $100,800 joint).
- The loss is big enough to matter. A $200 loss saves less than the time it takes to track.
- You can live with the replacement fund for at least 31 days.
If your taxable income is under $49,450 single ($98,900 joint), skip it. Your long-term gains are already taxed at 0%, and you are better off harvesting gains, not losses, to raise your cost basis for free.