Tax-Loss Harvesting Calculator

Understanding Your Tax-Loss Harvesting Savings

The calculator above produces three primary KPI cards: Federal Tax Savings, Total Tax Savings (federal plus state), and Years to Use Carryforward. Federal savings combine two sources: tax avoided on capital gains that the harvested losses offset, plus the value of the $3,000 ordinary income deduction (or $1,500 if married filing separately) at your marginal rate. The Total figure layers on state-level savings, computed as a simplified pass-through of the loss utilized this year times your state tax rate.[2, 1]

The Loss Carryforward KPI shows excess net capital loss that exceeds the annual deduction cap and rolls indefinitely into future years per IRC §1212. Years to Use Carryforward divides this remaining balance by the annual cap ($3,000 or $1,500), giving you a planning horizon: how many tax years are needed to fully absorb the loss assuming no future capital gains. The actual horizon is shorter if you realize gains in subsequent years, since carried losses offset those gains before hitting the ordinary deduction.[2, 4]

The Future Value card uses your expected annual return to compound the total tax savings over the projection horizon. This addresses a common blind spot: a $2,400 federal savings invested at 7% annually grows to roughly $9,300 over 20 years. Treat this number as the opportunity-cost framing — what your tax savings could become if reinvested at market returns rather than spent. Vanguard's 2024 personalized TLH research estimates this reinvestment-driven alpha at roughly 0.47% to 1.27% per year for taxable accounts in higher brackets, depending on factor exposures, replacement-security choices, and capital-gains availability.[18, 14]

The IRS Netting Process, Step by Step

IRS Form 8949 and Schedule D enforce a specific order of operations that determines which losses offset which gains. The calculator implements this exact sequence. Step 1 nets within character: short-term losses cancel short-term gains, and long-term losses cancel long-term gains. Step 2 cross-nets: any surplus loss in one character offsets surplus gain in the other. Only after both steps does the final net loss become eligible for the $3,000 ordinary income deduction.[3, 4, 2]

Worked example using the calculator default state: short-term losses of $5,000 and short-term gains of $2,000 produce a net short-term loss of $3,000. Long-term losses of $10,000 and long-term gains of $8,000 produce a net long-term loss of $2,000. Both characters are negative, so no cross-netting is needed. Combined net capital loss equals $5,000. The $3,000 cap applies to ordinary income, leaving $2,000 to carry forward. With a 24% marginal rate at $150,000 single income, the federal savings include $480 (ST gains × 24%) plus $1,200 (LT gains × 15%) plus $720 (ordinary deduction × 24%), totaling $2,400.[5, 21]

When losses cross-net into the other character, the calculator preserves the gain's character for tax-rate purposes. A net short-term loss offsetting a long-term gain saves at the lower long-term capital gains rate (the LT gain is what was reduced). Conversely, a net long-term loss offsetting a short-term gain saves at the higher ordinary rate. The calculator tracks these four offset pathways separately and applies the correct rate, including the 3.8% NIIT surcharge if your modified adjusted gross income exceeds the threshold for your filing status.[6, 7, 27]

Wash Sale Rule: Scenario Deep Dive

IRC §1091 disallows a loss when you buy substantially identical securities within 30 calendar days before or after the sale — a 61-day window in total. The calculator does not block your harvest, but every dollar of disallowed loss reduces both your federal and state savings to zero on that lot, while increasing the basis of the replacement security. Scenario one: you sell VOO at a loss on December 15 and buy VOO in your IRA on January 5. IRS Revenue Ruling 2008-5 confirms this triggers a wash sale across accounts and the loss is permanently disallowed (it does not raise IRA basis).[12, 8, 10]

Scenario two: Dividend Reinvestment Plans (DRIPs). If you harvest a loss on a stock that has DRIP enabled, the next dividend payment within 30 days creates a wash sale on the reinvested fraction. Pause DRIP at least 31 days before the planned harvest. Scenario three: a spouse buys substantially identical securities in their separate brokerage account. The IRS treats spousal accounts as the same person for §1091 purposes, so coordination is required. Scenario four: option contracts and short calls are explicitly listed in §1091 as triggering instruments — selling the underlying and buying call options on the same security is a wash sale.[19, 15]

The "substantially identical" standard has no IRS bright-line rule for funds. Industry consensus permits swaps between different issuers tracking the same index (VOO ↔ IVV both track the S&P 500), as long as you can defend the trade as economically distinct. Non-security crypto is currently outside §1091 scope under IRS Notice 2014-21 — losses on assets like Bitcoin and Ethereum remain harvestable without a 30-day wait. As a forward-looking signal, the IRS Form 1099-DA introduced for tax year 2025 already requires brokers to report Box 1i "Wash Sales Loss Disallowed" for tokenized securities sharing a CUSIP under §1091, while leaving non-security crypto outside scope per Notice 2014-21 (the next section explores the 1099-DA mechanics in depth). Always document your replacement-security rationale in case of audit, and consult a qualified tax professional for digital-asset edge cases.[25, 29, 35, 36]

Form 1099-DA and the Crypto Wash Sale Question

Beginning January 1, 2025, custodial digital-asset brokers must report customer sale proceeds on the new IRS Form 1099-DA, with the first forms reaching taxpayers in early 2026 for tax year 2025; cost-basis reporting on certain transactions begins January 1, 2026. The form contains Box 1i — Wash Sales Loss Disallowed — which mirrors the equivalent field on the equity-side Form 1099-B. Importantly, the 2025 Form 1099-DA instructions narrow the current §1091 trigger to **tokenized securities sharing the same CUSIP within the same account**: when both the loss sale and the replacement purchase occur in the same account on tokenized stock, brokers must report the disallowed amount in Box 1i. Non-security crypto (e.g., Bitcoin and Ethereum) remains classified as property under IRS Notice 2014-21 and stays outside §1091 scope, but the reporting infrastructure is now in place for any future statutory expansion.[35, 36, 25]

Practical implications for the calculator. If you sell non-security crypto at a loss and immediately rebuy, you remain outside §1091 — the calculator's loss totals stay valid for that lot. Tokenized securities held alongside crypto in mixed accounts are a different story: those will surface in Box 1i if you trigger the 30-day window, and the disallowed amount must be added to the basis of the replacement units. Three planning shifts deserve attention. First, document your cost basis precisely; the IRS now receives the same proceeds figure your broker reports, so a mismatch in your Form 8949 entries is more visible. Second, the per-account basis tracking that took effect in 2025 (with transition relief for good-faith filers) means Specific-ID and other lot-selection methods must operate within a single account — universal-basis treatment across accounts no longer applies to digital assets. Third, monitor any extension of §1091 to non-security crypto in future legislation; once enacted, the same 30-day wash-sale logic this article applies to equities would govern those harvests as well. Until then, treat non-security crypto loss harvesting as an opportunity that is structurally distinct from equity TLH, and consult a qualified tax professional if you hold tokenized securities or operate in mixed accounts.[35, 36, 25, 12]

The $3,000 Deduction: Mechanics and Edge Cases

After all gain offsetting, any remaining net capital loss is deductible against ordinary income up to $3,000 per year — or $1,500 if you are married filing separately. The calculator surfaces a yellow alert when MFS is selected to remind you of the lower cap. The deduction is "above the line" in the sense that it reduces adjusted gross income, which can also lower phaseouts for credits and the NIIT threshold calculation.[2, 1]

When the $3,000 cap is reached, the calculator displays a primary-color info banner showing how much excess loss carries forward. Per IRS Pub 550, the carryforward retains its short-term or long-term character based on the original sale, and the IRS Capital Loss Carryover Worksheet (in the Schedule D instructions) prescribes the order: short-term losses are applied to the ordinary deduction first because they would otherwise be taxed at higher rates if used to offset future short-term gains. The calculator implements this ordering rule.[4, 2]

A subtle edge case: if your ordinary income before the deduction is less than $3,000, the deduction can only zero out your taxable ordinary income — it cannot create a refundable credit. The unused portion of the deduction increases your carryforward. Most filers will not encounter this, but it matters for retirees with very low ordinary income who realize large losses; the deduction value depends on having enough ordinary income to absorb it.[3, 22]

Multi-Year Carryforward Modeling

The chart and table below the KPIs project carryforward depletion year by year. The default assumption: no future capital gains, so each year applies $3,000 (or $1,500 MFS) against ordinary income at your current marginal rate. The cumulative tax savings line accumulates these annual deductions plus the year-zero current-year savings, while the reinvested value line compounds prior savings at your expected return before adding the next year's deduction value.[2, 18]

The reinvested-value calculation matters because cumulative dollar savings are misleading without time value. A $720 deduction in year 5 is worth less than $720 in year 1 if you could have invested year-1 dollars at 7% for four years (year-5 equivalent: $943). The chart's emerald region above the gold cumulative-savings area visually represents this compounding gain — the wider the gap, the more your harvest strategy benefits from reinvesting savings rather than spending them.[13, 14]

Robo-advisors like Wealthfront and Betterment automate continuous TLH within their direct-indexing portfolios, which can extract additional alpha from intra-year volatility that an annual Schedule D harvest misses. Wealthfront's methodology paper estimates 1.55% annualized after-tax alpha for TLH+, while Betterment's research shows 0.77% on average. The calculator does not model continuous harvesting directly, but you can input your robo-advisor's realized loss totals as the short-term and long-term loss fields to estimate downstream tax impact.[30, 31]

State Tax and NIIT Considerations

State tax savings appear as a separate KPI because state treatment varies widely. Most states conform to federal capital loss netting and accept the $3,000 deduction, but Pennsylvania and New Jersey diverge for some categories — PA does not allow capital loss offset against ordinary income, and NJ historically taxed gains differently per asset class. The calculator applies your input state rate as a flat pass-through; if you live in a state with non-conforming rules, treat the state savings as an upper bound and consult your state's Schedule D analog.[21, 23]

The Net Investment Income Tax (NIIT) under IRC §1411 adds 3.8% to capital gains, dividends, and other investment income when modified adjusted gross income exceeds $200,000 single, $250,000 married filing jointly, $125,000 MFS, or $200,000 head of household. The calculator uses MAGI ≈ ordinary income + net capital gain as an approximation, and surfaces NIIT applicability by adjusting the LTCG and short-term gain effective rates upward. If your real MAGI includes other components (rental income, interest, etc.), the calculator may understate NIIT exposure.[6, 7, 27, 26]

Tax-loss harvesting can lower your MAGI by reducing realized capital gains, which may push you below the NIIT threshold. The calculator implicitly captures this in the effective rate before/after KPIs. For deeper NIIT planning, refer to our dedicated NIIT 2026 guide article — particularly if you have material rental, royalty, or passive business income that affects your full MAGI calculation.[6]

OBBBA, 2026 Brackets, and Why They Reshape TLH Math

The One, Big, Beautiful Bill Act (OBBBA, Public Law 119-21), signed July 4, 2025, made permanent the 2017 TCJA individual rate structure — locking the 10/12/22/24/32/35/37 percent ordinary brackets and the 0/15/20 percent long-term capital gains tiers in place beyond 2025. The capital-gains rate ladder itself did not change, but Rev. Proc. 2025-32 set the 2026 inflation-adjusted thresholds the calculator now uses by default: the 0 percent LTCG bracket runs to $48,350 for single filers and $96,700 for married filing jointly, while the 20 percent rate begins at $533,400 single and $613,700 MFJ. Standard deductions were also enlarged to $32,200 MFJ, $24,150 head of household, and $16,100 single — figures that materially affect the MAGI math driving both NIIT exposure and the marginal rate at which your $3,000 ordinary-loss deduction is valued.[5, 38, 21, 40]

For tax-loss harvesters, OBBBA's permanence eliminates a planning uncertainty that had loomed since 2017: clients no longer face the prospect of a 2026 sunset that would have raised top brackets to 39.6 percent. That stability favors gradual, rules-based harvesting over rushed multi-year acceleration. The Act also made permanent the Section 199A qualified business income (QBI) deduction for pass-through entities, which Schwab's coverage describes as "now-permanent" — eliminating a separate sunset that would have removed the 20 percent deduction at the end of 2025. The QBI deduction does not interact with capital losses directly, but for pass-through owners it can lower your effective ordinary rate, which marginally adjusts the value of the $3,000 deduction in carryforward years. If you fall in this group, run the calculator twice — once with your QBI-adjusted effective rate, once without — to see the spread.[39, 40, 38]

The indefinite carryforward this calculator projects rests on 26 U.S. Code §1212(b), which lets noncorporate taxpayers carry net capital losses forward to each succeeding tax year until exhausted, with the loss retaining its short-term or long-term character per IRS Publication 550 and the Capital Loss Carryover Worksheet in the Schedule D instructions. There is no statutory expiration. That permanence, combined with OBBBA's locked rate ladder, means a young investor harvesting losses today can reasonably model dozens of forward years without expecting the $3,000 cap or the LTCG tiers to vanish. Practitioners should still consult a qualified tax professional before claiming carryforwards on Schedule D when prior-year returns involved unusual events such as estate distributions, §1244 stock losses, or Section 1411 NIIT calculations that touch the same lots.[37, 2, 4, 22]

Optimal Harvesting Timing

December is the conventional harvesting season because all gains and losses must be realized by December 31 to count for the current tax year. However, harvesting earlier in the year can lock in losses before potential rebounds and gives you more flexibility to swap into similar securities. The calculator does not model intra-year timing; it computes a year-end snapshot. If you harvest in October but face a 30-day wash-sale window, plan replacement purchases to clear the prior year before any year-end DRIP triggers.[24, 16]

The Federal Reserve's rate-decision calendar can shift bond and rate-sensitive sector returns sharply within days. If you hold long-duration bonds at a loss following an unexpected hawkish FOMC pivot, harvesting before the next meeting locks in the loss while preserving exposure via a duration-matched but distinct fund. Conversely, in a falling-rate cycle, waiting for the next cut can deepen losses available for harvesting — but also increases the risk that prices recover before you sell.[34]

Pair year-end TLH with charitable giving for stacked tax efficiency. Donating appreciated long-held securities to a qualified charity (per IRS Pub 526) avoids the capital gains tax entirely while still claiming the fair-market-value deduction. Combine this with harvesting offsetting losses in your taxable account to neutralize gains while still taking the charitable deduction. This stacked strategy is most effective when your AGI is high enough to fully use the deduction in one year.[9, 32, 33]

Replacement-Security Pairs for Continuous Exposure

A successful TLH preserves market exposure during the 30-day wait. The trick: select a "substantially similar but not substantially identical" replacement. For US large-cap exposure, common pairs include Vanguard VOO ↔ iShares IVV (both S&P 500 trackers from different issuers — a defensible swap per industry consensus). For total US market: VTI ↔ SCHB ↔ ITOT. For international developed: VEA ↔ IXUS ↔ SPDW. The key requirement is different prospectus, different issuer, and different fund family. Document your reasoning in case of audit — the IRS has not provided bright-line guidance.[28, 20]

For sector-specific exposure where direct equivalents are scarce, swap into a broader index. If you sold a niche biotech ETF at a loss, replace it with a broader healthcare sector ETF for 30 days, then reverse if desired. The exposure mismatch (biotech-specific factor risk versus healthcare-broad) is the cost of preserving the loss. Schwab's and Fidelity's TLH guides recommend this "broader index proxy" approach when no clear substitute exists in your asset class.[16, 20]

Frequently Asked Questions

Key Takeaways

Tax-loss harvesting converts paper losses into real tax savings by netting them against capital gains and up to $3,000 of ordinary income annually. The IRS Form 8949 ordering rules — within-character first, then cross-net, then $3,000 cap, then carryforward — determine the actual savings. The wash sale rule under IRC §1091 is the primary trap: 30 days before AND after the sale, no purchase of substantially identical securities (including in spousal accounts and via DRIPs).[2, 12]

For most taxable investors in higher brackets, the cumulative effect of disciplined annual harvesting compounds into meaningful long-term alpha — Vanguard's 2024 personalized research estimates roughly 0.47–1.27% per year, with TLH+ direct-indexing strategies extending the upper bound for high-bracket taxable accounts. Use the calculator to model your specific scenario, and pair the savings projection with our compound interest calculator to visualize the long-term impact of reinvesting tax savings at your expected market return.[18, 13]