10 Tips for Harvesting Investment Losses

In this episode of Motley Fool Hidden Gems Investing, Motley Fool personal finance expert Robert Brokamp discusses what to keep in mind when using tax-loss harvesting:

• The range of investments to consider selling
• How not to run afoul of the wash-sale rules.
• The true value of the $3,000 ordinary income deduction.
• The default rules for how cost basis and holding period are assigned to different types of investments.
• The potential downsides of tax-loss harvesting.
• When it makes sense to harvest gains or donate appreciated shares to charities.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

This podcast was recorded on Oct. 17, 2026.

Robert Brokamp: Turning investment losses into tax benefits this week on the Saturday Personal Finance Edition of The Motley Fool Hidden Gems Investing Podcast. I'm Robert Brokamp. But somewhere in your portfolio, you probably have a loser, an investment that is now worth less than what you paid for it. However, all is not lost. If that investment is in a non-retirement account, not in an IRA or 401(k) or even an HSA, you can sell it, take the loss, and use it to reduce your taxable income. With the market near all-time highs, you may wonder how many losses investors have, but you likely have a few duds in your portfolio. Despite the S&P 500 being near an all-time high, approximately 200 of the stocks in the index are in the red for 2026, and around 40 of the stocks in the Nasdaq-100 are underwater so far this year. Three of the 11 Standard & Poor sectors have lost money over the trailing 12 months, those three being consumer discretionary, communication services, and utilities, though that last went only barely at a loss.

Even if you don't have losses in your taxable accounts, there are ways to be a tax smarter seller, perhaps even intentionally realizing some gains this year or passing them on to heirs or charities. Here are 10 tips for making the most of your losses and managing gains. Tip No. 1, tax loss selling isn't just for stocks. Any stock, bond, dual fund, ETF, or options contract that is below the price you paid can feel the wrath of your harvesting. Consider that the Vanguard Total Bond Market ETF, the biggest bond ETF in the world, is still down more than 20% from its 2020 peak. Don't limit your search to just individual stocks. You can also do some tax loss harvesting with your crypto, but the rules can be different and in some cases, it's actually more favorable, but I won't be touching on those in this episode. If you'll be selling your crypto at a loss, do additional research. I'll also add that, unfortunately, you cannot claim a taxable loss on property held for personal use, such as a house.

No. 2, match short- and long-term gains and losses. When you fill out your Schedule D and your tax return, you'll be required to categorize your sales as short term. Those are investments held for a year or less, or long-term held for longer than a year. You’ll start by offsetting the short-term gains with the short-term losses, and then the long-term gains with the long-term losses, and then whatever gains or losses are left over. After that process, offset each other with any remaining losses, reducing taxable income up to $3,000 per year, $1,500 if you're married and filing taxes separately. Excess losses can be carried forward to subsequent years.

By the way, that $3,000 deduction can be valuable. Some deductions lower your tax bill, but not your AGI, such as itemized deductions, but a capital loss does lower your AGI, AGI standing for adjusted gross income, and your AGI can affect various aspects of your finances, such as your ability to take other deductions and credits, whether you can contribute to a Roth IRA, how much you may pay for healthcare through the ACA or Medicare, and maybe your eligibility for college financial aid. If your AGI is just a bit over a threshold that has a negative impact on your finances, taking a capital loss in excess of capital gains could be a solution. As you consider which losses to recognize and how much, keep in mind that short term gains are taxed at the same rate as ordinary income, and that rate is higher than the tax rate, long term capital gains. It’s generally better to use losses to offset short-term gains and ordinary income over long-term gains, if possible.

umber 3, sell now, but wait before buying back. If you decide to sell an investment to take a loss on your tax return, don't buy it back within 30 days of the sale date. Otherwise, the loss is considered a wash sale, a loss that violates the wash sale will be disallowed, in other words, you can't enter it as a loss under Schedule D to offset your gains or ordinary income. If you lose your calendar and accidentally buy the investment back within 30 days, the disallowed loss is added to the cost basis. The 30-day clock starts the day after the sale, and we're talking calendar days, not trading days. Of course, if you have no intention of buying back the investment, then you don’t have to worry about all this wash-sale hullabaloo.

ADVERTISEMENT: You just found out that your sales team is at risk of missing quota. Don't panic. Just ask Rippling AI. Since it's built on your real time people and business data, Rippling AI can pull metrics from rippling and Salesforce into a meeting ready dashboard showing quota attainment, headcount plan, and monthly revenue to quota by region. In seconds, you'll see exactly what's behind your quota risk and fix it before it's missed. Question answered. Action taken, crisis averted. When you have critical business questions that need answers, don't just file a ticket and wait weeks for an outdated report. Describe what you need and have Rippling AI build it instantly from your live people and business data, whether it's a dashboard with detailed charts or automated workflows with the right triggers, conditions, and approvals. Ready to rule your business, head to rippling.ai/fool to get the only AI built to give you full visibility and take complex actions across your entire organization. That's R-I-P-P-L-I-N-G.ai /F-O-O-L. Sign up for exclusive access today rippling.ai/fool.

Robert Brokamp: Number 4, no cheating allowed. Right now, you may be scheming ways to get around the wash-sale rule, so you can still essentially own the investment and take the capital loss. Well, don't bother because the IRS has been around the block, and they've already thought about this. Here are some other ways to violate the wash sale rule. In other words, don't do these things and make sure your spouse doesn't either. You buy the investment 30 days or less before you unload the original unprofitable investment. The wash-sale rule actually covers 61 days: the day you sold the investment, the 30 days before that day, and the 30 days after. You reinvest dividends from that investment during that 61-day wash sale period. You buy an investment that is substantially identical. You buy an investment in another account, including an IRA or some other tax-advantaged retirement account. You buy a call option on the investment. As for other options strategies, it can get complicated.

Do your homework before mixing tax while harvesting in options. You buy an investment that could be converted into shares of that sold investment, such as a convertible bond, or you sell an index fund or an ETF based on one index and buy another ETF that follows that same index. Those are things that you should not do. It said there are still ways to gain similar exposure to investment while you wait for the 30 days to pass. For example, you could sell an ETF based on the S&P 500 and buy an ETF based on another index. You could also sell shares of a particular stock and then buy a funder ETF that invests in the same industry, even if that ETF holds shares in the company that you sold.

Number 5, you may have bought more shares than you think. If you made multiple purchases of an investment either deliberately or through dividend reinvestment, your holding has more than one cost basis. It's possible that you have a mix of gains and losses. For example, I'm a long-term shareholder of Starbucks, which is below its all-time high of $126 reached in 2021. I've been reinvesting dividends all along the way. Many of those reinvestments are underwater, though my original purchase of shares 18 years ago has been very profitable.

Number 6, specify which shares you're selling. If you determined which shares you'd like to sell, don't just click the Sell button on your broker's website. Make sure you understand your account providers options for assigning a cost basis and holding period to investments, and then choose the method that's best for you before you sell, usually can be done on your broker's website. The rules could be different from one type of investment to another, so here are the essentials. With stocks and ETFs, the default method is first in, first out, also called FIFO. That is, you sell the shares you've held the longest. Other, more Foolish choice, of course, is choosing specific shares. With mutual funds, you have the same two choices, FIFO and identifying shares, but the default method is usually a third option available only to funds, and that is average cost, which, as you might guess, is the total cost basis of all your shares divided by the number of shares. The default holding period will usually be FIFO. If you don't like that method, then you can change it. Once you've sold shares of a mutual fund using one method, you generally have to stick with it for all the shares you've bought up until then, you can choose a different method for newly acquired shares. With bonds, you can choose the FIFO method or identifying specific bonds if you're not selling your entire holding on that same issue.

The rules pertaining to bonds bought at a premium or discount can get tricky, but the main thing to know is that the basis may be adjusted each year, so it's very close to par when the bond matures, it depends on the bond and in some cases, the elections you've made, so do extra research or get professional help. Now, a note about cost basis information. Until 2011, financial services firms were required to just report gross proceeds of sales to the IRS. However, they must now also report the cost basis and holding period, so they're doing a better job of keeping records. But if you own investments bought before 2011, you might find that your broker doesn't have the cost basis information for specific shares, so you're going to have to basically unearth it yourself from your account statements. Plus, it's always possible that the info your broker has is wrong. Even FINRA, the self-regulatory organization run by the financial services industry, recommends that investors regularly review their account statements for potential inaccuracies. It's important to keep past account statements and trade confirmations, as well as documentation of your chosen disposition method.

Number 7, harvest gains too. Are you single or will you have less than $49,450 in taxable income in 2026? That is gross income minus your deductions or married and will have less than $98,900 in taxable income in 2026? Then I have good news. You won't pay any taxes on long-term capital gains up to a point. Just sell the investment, take the profits. You can even immediately buy back the investment. The 30-day wash sale rule only applies to capital losses, not gains. This will give you a tax-free reset to a higher cost basis. Just know that the capital gains themselves will increase the taxable income, which could tip you into the next capital gains tax bracket. But it's not as bad as that may sound, because the long-term gains up to that point will still enjoy the 0% tax rate.

Moving on to number eight, it's not all roses and lower taxes. Any transaction, buying and selling investments, even for tax-loss purposes, could have its costs. These days most trades are commission-free, but there are exceptions; for example, discount brokers often charge transaction fees to buy and sell some mutual funds. Then there are bid-ask spreads, which are bigger for less liquid investments. Plus, the investment you sold could increase by an amount greater than the value of the deduction before you get a chance to buy it back. Of course, if the investment declines before then, it's a bonus. Historically, the S&P 500 has raised it in value in around 60% of the months since 1928, according to Yardeni research. But the market does tend to get a little festive toward the end of the year. In fact, December has the highest percentage of positive months more than 70%, and it has the third-highest average return behind July and April. If you wait until the last month of the year to do your tax loss harvesting, historically speaking, you'll run a greater risk of missing out on some gains if you choose to keep the proceeds in cash.

Moving on to number 9, when tax loss selling may not make sense. Although it may be tempting to take a tax-reducing loss whenever possible, you may want to resist if you expect to buy back the investment and expect to be in a higher tax bracket in the future because of either higher income or congressionally imposed higher tax rates. Why? Because when you sell a stock and then buy it back later at a lower price, you now have a lower cost basis, which could lead to a larger capital gain and more taxes later.

By way of illustration, consider this scenario. You bought shares of a company we'll call Stinktronic, ticker PU, of course, at $100. It drops to 80, you sell it, you take a $20 capital loss, 31 days later, you buy it back at 80. For simplicity's sake, we're just going to assume the price didn't move. Years past, the stock is now worth $150. You sell and now have a $70 taxable capital gain, $150 minus the $80 cost basis. If you hadn't done the tax loss harvesting, the cost basis would be $100, and your taxable gain would be just $50. Now, given the time value of money, taking the loss this year might still make sense. As a lower tax bill theoretically means you have more to invest, but just understand the potential tradeoffs you're making.

Finally, moving on to step number 10, avoid gains by bequeathing or donating shares. Since we're discussing non-fun topics, permit us to bring up something besides taxes that is certain, and that is death. You can carry capital losses forward to future years indefinitely, but not eternally. Your losses die with you, including any loss carryforwards. If the losses were incurred in a jointly owned account, generally, only half the losses can be carried forward after one owner passes away. Once you reach a point in life when you're earmarking specific investments as assets you'll be passing on to the next generation, remember that the cost basis of inherited assets and non-retirement accounts is the value of the investment as of the date of death. That's good news if you pass on investments with large embedded gains since neither your estate nor your heirs will ever pay taxes on those gains. However, if you pass along an investment that is worth less than what you paid for it, the ability to write off those losses is gone forever. Speaking of giving investments to others, consider donating long-term appreciated investments to qualified nonprofit organizations.

That way, you avoid paying taxes on those long-term capital gains by passing them on to the charity, but it's no concern to the organization because a qualified charity doesn't pay taxes. Then with the cash that you would have donated to the charity, you can just buy back the shares and reset your cost basis to today's higher price. You don't have to wait 30 days. If you itemize your deductions on your tax return, you can also deduct the contribution up to a limit of 30% of your adjusted gross income. Contributions above that limit can be carried forward for five years. I should point out that starting this year, you can only take charitable contributions as an itemized deduction only to the extent that they exceed 0.5% of your AGI.

But the bottom line here is that if you're charitably inclined and have some winners in your taxable brokerage account, donating shares with long term gain should be one of your first sources of funds you'll use to support your favorite qualified charities or get money into a donor advised fund. I'll conclude this episode by saying that what I've covered here really does just scratch the surface. Make sure you do your own research and perhaps consult a tax professional before you make any decisions.

That, my Foolish friends, is the show. Thank you for listening, and thanks to Bart Shannon, the engineer for this episode. As always, people on the program may have interest in the investments they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell investments based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Robert Brokamp. Fool on, everybody.

Robert Brokamp, CFP, EA has positions in Vanguard Total Bond Market ETF. The Motley Fool has positions in and recommends Starbucks and Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.