How much could you harvest in losses this year?

What tax-loss harvesting actually does

Tax-loss harvesting (TLH) is the practice of selling investments that are trading below their cost basis to realize a capital loss, then using that loss to offset taxable income. The IRS allows realized capital losses to first offset realized capital gains (no annual limit), then up to $3,000 of ordinary income per year, with any remainder carrying forward indefinitely.

The mechanics: you sell a losing position and immediately buy a similar fund that is not substantially identical, usually one that tracks a different index. Buying the same security, or a substantially identical one, within 30 days before or after the sale is a wash sale, and the IRS disallows the loss. Avoid that and you lock in the loss for tax purposes while staying exposed to much the same market. Your portfolio looks about the same; your tax bill gets smaller.

What this estimator simplifies

The headline number on this page assumes no realized capital gains — which is the conservative read. Most years, if you've sold any winners (rebalancing, fund switches, life events), your harvested losses offset those gains first at the capital gains rate, with no annual cap. That can substantially increase your actual savings.

The estimator also assumes a constant combined federal + state tax rate, no rate changes, no wash sale violations, and that you can replace each sold position with a non-substantially-identical equivalent. Real TLH is more nuanced. When you run a scan, the full Rikdom product checks each lot in your taxable accounts, suggests a replacement fund (where it has one) that doesn't track the same index, and warns you about any purchase of the same security in the past 30 days. That check matches the exact security only, and you place the trades yourself.

Why most years are worth looking

A diversified portfolio in a normal market year has 10-25% of its positions trading below cost basis even when the overall return is positive. Markets don't move in unison, and dollar-cost averaging means some lots were bought at higher prices than others. Checking once or twice a year typically surfaces harvestable losses that would otherwise sit unrealized.

The estimator above gives a rough order of magnitude. For most DIY investors with a few hundred thousand in taxable accounts, the annual savings number lands somewhere between a few hundred and a few thousand dollars — meaningful enough to be worth doing once a year, small enough to be easy to forget. Rikdom's scan does the looking: run it and it lists the lots below cost basis in your taxable accounts, with the estimated savings on each.