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A down year in a taxable brokerage is not just a mood. It is an option: realize the loss, keep market exposure with a similar fund that is not substantially identical, and shrink this year’s tax bill — or bank the loss for later. The paid order of operations is the 12-step harvest file. This page is the rule.
Updated 2026-09-30 · 11 min read · IRC §1091 and §1211(b). 2026 long-term bands from Rev. Proc. 2025-32. Not tax advice.
You bought a total-market ETF for $10,000. You type today’s value as $8,200. Those are example prices, not a quote. If you sell, you realize an $1,800 capital loss. That loss offsets capital gains already locked in this year (a winning stock, a mutual-fund distribution). Under IRC §1211(b), a net capital loss then offsets up to $3,000 of ordinary income ($1,500 if married filing separately). The rest carries forward. It does not expire.
The value is the tax rate of the bucket the loss lands on, not a flat refund. Against long-term gains in the 15% federal band, $1,800 is $270 of federal tax. Against a short-term gain or the ordinary slice at 24%, it is $432, plus whatever state rate you actually pay. In the 0% long-term band, using the loss on long-term gains is worth $0 federally this year. The calculator defaults — loss $4,200, short-term gains $1,500, long-term gains $2,000, ordinary 24%, long-term 15%, state 5% — save $1,038 and put $700 of the loss on the ordinary slice. Nothing carries forward on that example. Schedule D keeps short-term and long-term character. The calculator’s single loss figure does not.
| Rate | Single | Married filing jointly |
|---|---|---|
| 0% | $0 – $49,450 | $0 – $98,900 |
| 15% | $49,451 – $545,500 | $98,901 – $613,700 |
| 20% | $545,501+ | $613,701+ |
Rev. Proc. 2025-32. Head of household 0% runs through $66,200; 15% through $579,600. Married filing separately uses half the joint ceilings: 0% through $49,450 and 15% through $306,850. NIIT of 3.8% (IRC §1411) stacks once MAGI exceeds $200,000 single or $250,000 married filing jointly. Those floors are not inflation-indexed.
IRC §1091(a) disallows the loss if you acquire substantially identical stock or securities in the period that begins 30 days before the sale and ends 30 days after. Treas. Reg. §1.1091-1 calls that the 61-day period. In a taxable account the disallowed loss generally adds to the new lot’s basis. Selling a total-market ETF and buying the same ticker in a Roth is the own-goal: Revenue Ruling 2008-5 disallows the loss and does not increase your basis in the IRA. IRS Publication 550 (2025) says the same for a purchase by your spouse or by a corporation you control.
The usual fix: sell the loser, buy a close cousin the same day. VTI → ITOT or SCHB. S&P 500 → a total-market fund, or vice versa. A US small-cap fund is not a stand-in for the S&P 500. Document the substitute. After 31 days you may swap back if you care about the original ticker.
Specific-lot identification matters. Tell the broker before the trade which lots to sell (highest basis first when harvesting). Default FIFO can sell the cheap lots you wanted to keep.
Do not harvest in an account you will need as cash in three weeks if the substitute is more volatile. Do not harvest a $200 loss that generates a $10 commission story and a tracking headache. Do not harvest if you are in the 0% LTCG bracket and have no ordinary income to offset — you are spending complexity for nothing. And do not harvest just to “do taxes”; a concentrated position you should sell anyway is a gain/loss decision, not a harvest ritual.
Selling an investment in a taxable account for less than your basis, so the realized loss offsets realized capital gains. Under IRC §1211(b) a net capital loss also offsets up to $3,000 of ordinary income ($1,500 if married filing separately). Unused loss carries forward.
IRC §1091(a) disallows a loss on stock or securities if you acquire substantially identical stock or securities in the period beginning 30 days before the sale and ending 30 days after. Treas. Reg. §1.1091-1 calls that the 61-day period. The disallowed loss is generally added to the replacement lot's basis. It is not a 30-days-after-only rule.
Yes. IRS Publication 550 (2025) treats a purchase of substantially identical stock for your IRA or Roth IRA as a wash. Revenue Ruling 2008-5 disallows the loss and does not increase your basis in the IRA. A trade that never leaves the 401(k) or IRA is not a harvest: there is no 1099-B.
IRS Publication 550 (2025) says that if you sell stock at a loss and your spouse, or a corporation you control, buys substantially identical stock, you also have a wash sale.
IRC §1211(b) caps the ordinary-income offset at $3,000 ($1,500 if married filing separately). Losses first offset capital gains. The rest of a net capital loss carries forward. It does not expire, and it does not all land on this year's wages.
It depends which bucket it offsets. Against long-term gains in the 15% band it is about $150 federally, or $0 if those gains were already in the 0% band. Against short-term gains or the ordinary-income slice it is worth your ordinary rate. On the calculator's defaults — a $4,200 loss, $1,500 short-term gains, $2,000 long-term gains, 24% ordinary, 15% long-term, 5% state — estimated tax saved this year is $1,038, of which $700 is the ordinary slice.
Rev. Proc. 2025-32: the 0% rate applies through taxable income of $49,450 single, $98,900 married filing jointly, and $66,200 head of household. The 15% rate runs through $545,500 single and $613,700 married filing jointly. The 20% rate is above that. NIIT is a separate 3.8% once MAGI exceeds $200,000 single or $250,000 married filing jointly. Those NIIT floors are statutory and not inflation-indexed.
IRC §1091 covers stock or securities. IRS Notice 2014-21 treats convertible virtual currency as property, so the statute's text does not name a coin you hold directly. A bill the House Ways and Means Committee advanced on September 16, 2026 would extend wash-sale limits to many digital assets. It is not law as of September 30, 2026. Do not assume a headline changed the Code.
Educational only. IRC §1091 and §1211(b), Treas. Reg. §1.1091-1, Rev. Rul. 2008-5, Publication 550 (2025), Notice 2014-21, Rev. Proc. 2025-32. Not tax advice.