Tax Gain/Loss Harvesting

AAA

DEFINITION of 'Tax Gain/Loss Harvesting'

Selling securities at a loss to offset a capital gains tax liability. Tax gain/loss harvesting is typically used to limit the recognition of short-term capital gains, which are normally taxed at higher federal income tax rates than long-term capital gains.

Also known as "tax-loss selling".

INVESTOPEDIA EXPLAINS 'Tax Gain/Loss Harvesting'

For many investors, tax gain/loss harvesting is the single most important tool for reducing taxes now and in the future. If properly applied, it can save you taxes and help you diversify your portfolio in ways you may not have considered. Although it can't restore your losses, it can certainly soften the blow. For example, a loss in the value of Security A could be sold to offset the increase in value of Security B, thus eliminating the capital gains tax liability of Security B.

RELATED TERMS
  1. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  2. Capital Gains Treatment

    The specific taxes assessed on investment capital gains as determined ...
  3. Realized Gain

    A gain resulting from selling an asset at a price higher than ...
  4. Tax Liability

    The total amount of tax that an entity is legally obligated to ...
  5. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  6. Realized Loss

    A loss is recognized when assets are sold for a price lower than ...
RELATED FAQS
  1. What are typical trust fund management fees?

    The asset management fee is a straightforward fee charged on a trust fund. It is expressed as a fixed percentage of the total ... Read Full Answer >>
  2. What is the difference between comprehensive income and gross income?

    Comprehensive income and gross income are similar, but comprehensive income is a specific term used on a company's financial ... Read Full Answer >>
  3. What tax breaks are afforded to a qualifying widow?

    The tax breaks accorded to qualifying widows or widowers include being able to use a tax filing status that allows for a ... Read Full Answer >>
  4. How is income taxed on prorated salary?

    Since yearly income is viewed by the Internal Revenue Service (IRS) as the total amount of income a person has made over ... Read Full Answer >>
  5. How can I tell which of my business expenses count as write-offs?

    Any basic, reasonably necessary expenses incurred in running a business can be considered possible write-offs. Such expenses ... Read Full Answer >>
  6. What is the difference between a write-off and a deduction?

    There is no difference between a tax write-off and a tax deduction. It's possible that the confusion arises between a tax ... Read Full Answer >>
Related Articles
  1. Taxes

    Before You Visit Your Tax Preparer: Do This

    The earlier you start preparing your tax records and documents, the more likely you are to have a smooth tax return experience – and all the tax benefits you're due.
  2. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  3. Active Trading Fundamentals

    The Art Of Cutting Your Losses

    Taking corrective action before your losses worsen is always a good strategy. Find out how to keep your capital losses small and let your winners run.
  4. Investing Basics

    Tax-Loss Harvesting: Reduce Investment Losses

    The option to bolster after-tax stock returns through tax-loss harvesting can reverse investor gloom.
  5. Retirement

    Top Reasons Not to Roll Over Your 401(k) to an IRA

    Five cases in which keeping your plan in place – or employing another non-IRA strategy – is the better move.
  6. Investing Basics

    Got Dividends? Here's How to Reinvest Them

    Reinvesting dividends is almost always a good idea if you intend to hold your shares for the long term, and there are several ways to do it.
  7. Taxes

    Top Tax Tips to Deduct Investment Management Fees

    Investment expenses can be deducted by those who meet three main criteria. Here's what they are and how they work.
  8. Investing Basics

    Understanding the Capital Gains Tax

    A capital gains tax is imposed on the profits realized when an investor or corporation sells an asset for a higher price than its purchase price.
  9. Retirement

    5 Reasons to Convert a Roth To a Traditional IRA

    Here's a quintet of cases when the traditional IRA trumps the Roth version.
  10. Professionals

    Target-Date vs. Index Funds: Is One Better?

    Target-date and index funds are difficult to compare because they differ in both structure and objective, though investors can compare two specific funds.

You May Also Like

Hot Definitions
  1. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  2. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  3. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  4. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  5. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  6. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!