How does "tax loss harvesting" work?

Oldman answered 3 months ago …

In a taxable account, you can sell current losers to generate short or long-term losses...but can't buy substantially identical issues for 30 days. These losses accumulate to offset short-term gains or interest; and or long term gains. Example; you bought 100 shares of GLD for 90; you sel at 81 ($900 loss and include costs to purchase and sell), buy 100 shares of ETF silver...not identical, so wash sale rule not triggered...if you buy IAU the wash sale rule applies if purchased within 30 days; a wash sale is disallows claiming a loss when a substantially identical issue is purchased within 30 days before or after the sale of the losing issue. If this ever happens, the loss on the first issue becomes part of the "basis" of the purchase of the substantially identical issue.

Example: Last year you purchsed 10K of Third Ave Value Fund...you sell now and take a 2200 long-term loss. You could buy ADVDX and get some income and a depressed share value; but you can't use the long-term loss to offset any short term gains or interest income.

The losses can be carried over against general taxable income (up to 3000); amounts beyond that can be carried over for years - if necessary - to deduct from other gains and income..

For complete rulse and examples, please go to IRS.gov

Most tax-loss harvesting begins in the Fall, and often begins a period of increased stock prices. It reaches a frenzy by Dec.15, of each year.