Tax-Loss Harvesting Calculator

Understanding the Tax-Loss Harvesting Calculator

Tax-loss harvesting is a sophisticated investment strategy used to lower your tax bill. It involves selling investments in your taxable brokerage account at a loss to offset taxes on both capital gains and, to a limited extent, ordinary income. This calculator helps quantify the potential tax savings from this strategy.

How It Works

The calculator determines your potential tax savings based on your gains, losses, income, and tax rate.

• Realized Capital Gains: The total profit you've made from selling investments during the tax year.
• Realized Capital Losses: The total loss you've incurred from selling other investments.
• Taxable Ordinary Income & Marginal Tax Rate: Your income and tax rate are used to calculate the value of deducting losses against ordinary income.

The Rules of Offsetting

The IRS has a specific order for how losses are used:

1. Capital losses are first used to offset capital gains. Your tax savings here are equal to the offset gains multiplied by your capital gains tax rate.
2. If you have more losses than gains, you can use up to $3,000 of the excess loss to reduce your ordinary income. The savings here are equal to the deducted amount multiplied by your marginal income tax rate.
3. Any remaining losses can be carried forward to future tax years.

This calculator demonstrates the potential value of this strategy, turning market losses into a valuable tax asset.

Frequently Asked Questions