Let’s say you have capital gains to offset, and you are in the 20% long-term capital gains tax rate. stock market recovers, your investment also recovers because you were fully invested. Which means, you realized a loss for the tax benefit, but also stayed invested. You took a realized loss but not an actual loss because you remain fully invested with little changes to your asset allocation. Your new cost basis is $50,000, which is invested in the USA Momentum ETF. You sold all of your Total Stock Market Index Fund then used that money to buy the USA Momentum ETF. Let’s say in 2019, you invested $100,000 in a brokerage account, consisting of $60,000 (your cost basis in a Total Stock Market Index Fund) and $40,000 (your cost basis in a Total Bond Market Index Fund).ĭue to the coronavirus pandemic, the stock market crash in 2020 and the value of the Total Stock Market Index Fund decreased to $50,000. How is tax-loss harvesting done in practice? In order to do tax-loss harvesting, the investment value has to be below their cost basis. You want to replace the investment with something similar because when that type of investment recovers, you don't miss out on the gains. You want to realize the loss for the tax benefits. Tax-loss harvesting is selling an investment at a loss to realize the loss then reinvest the proceeds in a similar investment. Tax-Loss Harvesting What is tax-loss harvesting? The goals of tax-loss harvesting and tax-gain harvesting are to reduce your overall tax liability, avoid or reduce paying taxes on your investments gains, and increase your after-tax returns. Tax harvesting breaks down into two forms: tax-loss harvesting and tax-gain harvesting. Today’s educational video is about tax harvesting. Hi everyone, my name is Tan, and I am an independent CERTIFIED FINANCIAL PLANNER™ practitioner at TAN Wealth Management.
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