Tax Loss Harvesting Planner

Tax loss harvesting is one of those strategies that sounds technical but boils down to a simple idea: using investment losses to reduce your tax bill. When you sell an investment in a taxable account for less than you paid, you realize a capital loss. That loss can offset capital gains and, in many cases, a limited amount of ordinary income. The Tax Loss Harvesting Planner helps you quantify this effect so you can decide whether harvesting losses makes sense for your situation.

The planner starts with your unrealized losses—the losses that exist on paper but have not yet been realized through a sale. You then enter your current short-term and long-term capital gains for the year. Short-term gains are typically taxed at ordinary income rates, while long-term gains often benefit from lower preferential rates. By combining these inputs with your marginal ordinary income tax rate and long-term capital gains tax rate, the tool estimates how much tax you could save by realizing a portion of your losses.

At the core of the planner is a simple allocation logic. First, harvested losses are used to offset capital gains. If you have \$8,000 of short-term gains and \$6,000 of long-term gains, and you harvest \$10,000 of losses, the tool assumes losses offset short-term gains first, then long-term gains. In this example, \$8,000 of losses would offset short-term gains, and \$2,000 would offset long-term gains. The tax savings from gains are calculated using: gainSavings = (lossAppliedToShortTerm × ordinaryRate + lossAppliedToLongTerm × ltcgRate) / 100.

If your harvested losses exceed your total capital gains, the remaining loss may offset ordinary income, subject to annual limits. Many taxpayers can deduct up to \$3,000 of net capital loss against ordinary income each year, with any excess carrying forward. The planner approximates this using an annual ordinary income offset limit input. It calculates ordinary income savings as: ordinarySavings = min(remainingLoss, annualLimit) × ordinaryRate / 100. Losses beyond that limit are treated as carryforward, which may reduce taxes in future years.

The total estimated tax savings are then: totalSavings = gainSavings + ordinarySavings. The tool also reports how much loss is used in the current year and how much may carry forward. This gives you a clear picture of the immediate benefit of harvesting losses and the potential future value of remaining losses.

The planner includes an alternative scenario so you can compare different harvest amounts or tax rate assumptions. For example, you might test harvesting \$10,000 versus \$6,000 of losses, or compare your current tax rate to a lower rate you expect in retirement. The alternative scenario uses its own harvest amount and tax rates but the same gains and annual ordinary income limit. This side-by-side comparison can help you decide whether a more aggressive or more conservative harvesting strategy aligns with your goals.

Wash sale rules are an important consideration in real-world tax loss harvesting. If you sell a security at a loss and buy the same or substantially identical security within a specified window, the loss may be disallowed for tax purposes. The planner includes an estimated wash sale risk percentage to remind you that some portion of your planned harvest might be at risk if you do not structure trades carefully. However, the tool does not enforce or model wash sale rules; it assumes losses are allowed. You must ensure that your trades comply with IRS regulations.

Consider a practical example. Suppose you have \$12,000 of unrealized losses, \$8,000 of short-term gains, and \$6,000 of long-term gains. Your marginal ordinary rate is 24%, and your long-term gains rate is 15%. You plan to harvest \$10,000 of losses, and your annual ordinary income offset limit is \$3,000. The planner will allocate \$8,000 of losses to short-term gains and \$2,000 to long-term gains. Gain savings are: \$8,000 × 24% + \$2,000 × 15% = \$1,920 + \$300 = \$2,220. If you had more losses than gains, the remaining loss could offset ordinary income up to the annual limit, generating additional savings.

In this example, because your harvested losses equal your total gains, there is no remaining loss to offset ordinary income, and no carryforward. Your total estimated tax savings are \$2,220. The planner will show this amount, along with the breakdown between gains savings and ordinary income savings. If you adjust the harvest amount or tax rates, you can see how the savings change and decide whether the incremental benefit is worth the trading costs and potential wash sale risk.

The CSV export feature lets you save your scenarios for future reference. You might record your year-end harvest plan, mid-year adjustments, or alternative strategies you considered but did not implement. Over time, this record can help you understand how tax loss harvesting has contributed to your after-tax returns and how your tax situation has evolved.

It is important to remember that tax loss harvesting is not a free lunch. Realizing losses means locking in a decline in value, and reinvestment decisions must align with your long-term asset allocation and risk tolerance. The Tax Loss Harvesting Planner focuses on the tax side of the equation, but you should always consider investment fundamentals alongside tax strategy. Pair this tool with other MyGenFinance calculators—such as the Tax-Equivalent Yield Calculator, After-Tax Income Calculator, and Business Expense Tax Deduction Tool—to build a more complete view of your financial picture.

Ultimately, the goal of this planner is to give you a clear, intuitive estimate of the tax impact of harvesting losses. By breaking the process into simple components—gains offset, ordinary income offset, and carryforward—it helps you see how a potential strategy might play out before you place trades. Use it as a guide, and always combine it with official tax resources and professional advice when making decisions that affect your filings and long-term investment plan.