What is tax-loss harvesting?

Tax-loss harvesting means selling an investment that has declined in value to realize a capital loss, which can offset capital gains from other investments — reducing your tax bill. If your capital losses exceed your gains in a year, you can deduct up to $3,000 of the excess against ordinary income, with the remainder carried forward to future years. One important rule: the 'wash sale' rule prevents you from buying substantially identical securities within 30 days before or after the sale (or the loss is disallowed). Tax-loss harvesting is most valuable in taxable brokerage accounts; it does not apply inside IRAs or 401(k)s, which are already tax-advantaged.