This is the first post in a three-part year-end tax series. Part 2 covers charitable giving. Part 3 covers retirement contributions.
The losses sitting in your taxable accounts are worth money, and the window to use them closes December 31.
It's October. You have time. Let's use it.
What Harvesting Does
You sell an investment in a taxable account for less than you paid. That creates a realized loss, and the loss works for you in three ways.
It offsets your realized gains dollar for dollar. If your losses exceed your gains, up to $3,000 offsets ordinary income. Anything left over carries forward with no expiration.
Here is a quick hypothetical. You realized $50,000 in gains this year. You also own a position sitting on a $30,000 loss. Sell it, and your net gain drops to $20,000. You still own a portfolio that fits your plan, and you owe tax on less.
Keep your investment plan in charge. A harvested loss works best when the portfolio you end up with still fits your goals. The tax benefit is the bonus, not the reason.
Look Back for Carryforward Losses
Start with your 2025 tax return. Check for a capital loss carryforward.
Carryforward losses can come from any prior year, not just 2025. A loss you never fully used five years ago is still waiting for you. The Capital Loss Carryover Worksheet that goes with your 2025 Schedule D tracks it and shows the total carried into 2026. Your CPA can pull it in a minute.
That number matters. A carryforward offsets your 2026 gains before you harvest anything new. You may already have losses banked, which means you need to harvest less, or you can realize gains this year with no tax cost.
Carryforward losses also keep their character. Short-term losses stay short-term, and long-term losses stay long-term.
Know Your Number First
Before you sell anything, pull your realized gains and losses for 2026 across every taxable account in your household. Add your carryforward to the picture. Count:
• Stock and fund sales you already made
• Business or real estate sales
• Fund capital gain distributions, which often arrive in the fourth quarter
• Gains passed through from partnerships and alternatives
If you hold alternatives, K-1s show up late. Ask your CPA for an estimate now so you are not guessing in April.
Respect the Wash Sale Rule
Buy the same or a substantially identical security within 30 days before or after your sale, and the IRS disallows the loss. That is a 61-day window.
Three places the rule applies that investors often miss.
Accounts. The rule covers all of your accounts, including IRAs and your spouse's accounts.
Reinvestment. An automatic dividend reinvestment that buys shares inside the window disallows part of your loss.
"Substantially identical." Swapping between two funds that track the same index is risky. Moving into a similar but different holding is cleaner.
Harvest Gains Too
Harvesting is not only about losses.
In a lower-income year, realizing long-term gains on purpose resets your cost basis higher at a low tax cost. Higher-income households also need to account for the 3.8% Net Investment Income Tax, which stacks on top of the capital gains rate.
The right move depends on this year's income, next year's income, and what you plan to do with the investment.
Your Checklist
• Check your 2025 return for a capital loss carryforward
• Gather 2026 realized gains and losses for every taxable account
• Identify positions with unrealized losses
• Check for wash sale conflicts across the whole household
• Review upcoming fund distribution dates
• Decide where the proceeds get reinvested
• Bring your CPA into the conversation before December
Up Next
Part 2 covers charitable giving. The rules changed this year, and they affect almost everyone who itemizes.
This content is for educational purposes and is not tax or legal advice. Please consult your tax professional about your individual situation.