Photo by Tima Miroshnichenko
Nobody bats 1000 when it comes to the markets, and that could be good tax news. If some of your assets paid off this year, you can reduce those taxable gains by using tax-loss harvesting.
It’s been, shall we say, an interesting year for investors.
After starting 2025 strong, the U.S. markets have weathered Trump 2.0 on-and-off-and-back-on tariffs, cryptocurrency bounces and crashes, and still hit periodic new highs throughout the year.
Now, with year-end approaching, the markets’ roller-coast is still running, some might say amok. The gyrations come as stockholders are evaluating their portfolios.
Many investors have come out ahead. Others, however, have seen at least some of their holdings take a hit.
If the drop of one of your assets is a trend rather than just a blip, it might be time to harvest that loss to offset the gains your other holdings have produced. Not only will it streamline your portfolio, it will help ease your overall tax bill.
Capital gains tax rates: The good news for investors who’ll have gains this year is that long-term capital gains (and qualified dividends) are taxed at rates lower than their ordinary income tax rates.
While the top ordinary rate is 37 percent, long-term capital gains max out in most cases at 20 percent for those in higher tax brackets. As with ordinary tax brackets, the capital gains’ brackets are adjusted annually for inflation.
The table below gives you an idea of how, based on your filing status and income, how your 2025 long-term capital gains will be taxed.
| 2025 Tax Year | Capital Gains Taxable Income Brackets by Filing Status | |||
| Long-Term Capital Gains Tax Rate | Single | Head of Household | Married Filing Jointly or Surviving Spouse | Married Filing Separately |
| 0% | $0 to $48,350 | $0 to $64,750 | $0 to $96,700 | $0 to $48,350 |
| 15% | $48,351 to $533,400 | $64,751 to $566,700 | $96,701 to $600,050 | $48,351 to $300,000 |
| 20% | $533,401 and more | $566,701 and more | $600,051 and more | $300,001 and more |
Patience pays offs: Again, the capital gains tax rates above are for profits on long-term assets. These are stocks and other capital gains properties that you hold for more than a year before selling.
If you sell before meeting that time frame, you’ll owe at the short-term capital gains tax rate, which is your usually higher ordinary income tax rate.
Technically, your long-term losses will offset long-term gains. The same process applies if you have short-term gains that can be erased by short-term losses.
If losses don’t exceed gains, you can only reduce your capital gains to the extent of your losses.
But if you have more losses than gains, in addition to hiring a new financial adviser, you can use up to $3,000 of the excess losses to offset your return’s regular income. Any more than that can be carried forward to offset capital gains in future tax years.
Don’t wash away your tax benefit: If you’re tempted to buy a replacement stock for the losing one you sold, be careful. You could trigger the tax code’s wash-sale rule, which would invalidate your tax loss harvesting benefit.
The wash sale rule was created to prevent taxpayers from claiming a deduction for a security sold at a loss and then repurchasing it or a similar investment soon after. It says you cannot claim a capital loss write-off on the sale of securities if you purchase substantially identical securities up to 30 days before or after the sale.
Basically, the IRS doesn’t allow you to sell a dog of stock solely to get a tax break and then pick up a more profitable pup to replace it. However, the wash sale rule is not a forever prohibition. Your recognized loss is only suspended, since the loss amount is added to the tax basis of your replacement securities. But it will erase a tax benefit you thought you were getting this year.
Portfolio planning year-round: Considerations like the wash sale rule are one reason why you should evaluate your portfolio and make adjustments throughout the year.
By limiting your portfolio rebalancing to the end of the year, you lose the opportunity to sell both gaining and losing assets at times when the profit, and offsetting losses, could be more valuable.
But if you’re just now reviewing your assets for possible sale by Dec. 31, that’s better than losing the potential income and offsetting losses. So be sure to look at all your holdings in ways they could work together at tax-filing time.
