Tax-loss harvesting - Financial definition
Concise definition of the term tax-loss harvesting
Tax-loss harvesting is a strategy where investors sell securities at a loss to offset capital gains tax liabilities.
Comprehensive definition of the term tax-loss harvesting
In the broader context of portfolio management, tax-loss harvesting involves selling underperforming investments to realize losses that can be used to offset gains from other investments, thereby reducing taxable income.
This practice is commonly used towards the end of the tax year to minimize tax burdens and can involve repurchasing similar assets to maintain portfolio balance, all while adhering to IRS wash-sale rules, which prohibit buying substantially identical securities within 30 days before or after the sale.