Tax-Loss Harvesting

If investments you sold in 2026 lost money, you may find some solace in the IRS tax code. You can deduct certain losses from your taxable income — a practice known as tax-loss harvesting — if you understand the rules. Here are the basics:

THE RULES

For starters, the IRS has separate tax rates for long-term investments — those that you have held for more than a year. The capital gains tax rate on net realized long-term investment gains, or capital gains, is 15% for most people.

You realize losses and gains only on investments you sell, not on those you still hold. Investments held for a year or less trigger ordinary income tax rates, which are typically higher. The IRS taxes some or all net capital gains at 0% if your income is low enough. You'll pay 20% on net capital gains if your taxable ordinary income exceeds $545,501 if filing as a single, $613,701 if filing jointly, $579,601 if filing as head of household, and $306,851 if married and filing separately.

THE CALCULATION

To calculate net losses, subtract the amount you realized from selling your investment from the original investment amount, then deduct any sales charges. If your realized capital losses exceed your realized capital gains, deduct up to $3,000 per year for individuals and married couples filing jointly, or up to $1,500 if married and filing separately. You may carry forward any losses exceeding this annual cap to future years.

LONG-TERM VIEW

Don't sell investments solely for tax reasons. Hold those that lost money last year if they still have long-term prospects, and sell winners that don't fit your investment strategy.