Tax Gain/Loss Harvesting

Tax Gain/Loss Harvesting

A process of selling securities at a loss to offset a capital-gains tax liability. It 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".

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For many investors, tax gain/loss harvesting is the single most important area 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.

See also: Capital Gain, Capital Loss, Realized Loss, Realized Gain, Separate Account, Tax Liability