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Tax-Loss Harvesting Calculator

Simulate the IRS capital loss netting algorithm to transform paper equity losses into immediate, real cash tax savings using the exact same sequence the IRS mandates.

Realized Capital Gains

$
$

Paper Losses to Harvest

$
$

Tax Environment

%
%

Short-Term gains are taxed aggressively at your Ordinary bracket. Long-Term gains are structurally locked to 0%, 15%, or 20% federal depending on income.

Est. Tax Savings

$4,590
Direct Cash Equivalency

Harvesting Effectiveness

Total Gains Shielded:$15,000
(+) Remaining Unused Gains:$0
Ordinary Income Deduction:$2,000
Future Carryforward Shield:$0
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What is The IRS Tax-Loss Netting Algorithm?

Tax-loss harvesting is a massive, legal algorithmic loophole allowing investors to intentionally sell losing assets to generate artificial 'Paper Losses.' These losses act directly as shields, mathematically destroying the taxes owed on winning assets you already sold. However, the IRS forces a strict sequence of 'netting' rules that dictate exactly what order you are allowed to shield your gains.

Mathematical Foundation

Phase 1: Like-Kind Annihilation\text{Phase 1: Like-Kind Annihilation}
Short-Term vs Short-Term\text{Short-Term vs Short-Term}= You MUST offset short-term gains (which are taxed brutally at your income rate) with short-term losses first.
Long-Term vs Long-Term\text{Long-Term vs Long-Term}= Long-term losses MUST offset long-term gains (which are taxed lower at 15%) first.
Phase 2: The Crossover\text{Phase 2: The Crossover}
Cross-Netting\text{Cross-Netting}= If you wipe out all your ST gains and still have ST losses left over, you are legally allowed to 'cross over' and use them to attack your LT gains. (And vice-versa for remaining LT losses vs ST gains).
Phase 3: The $3,000 W2 Shield\text{Phase 3: The \$3,000 W2 Shield}
Net Capital Loss\text{Net Capital Loss}= If you destroy ALL your capital gains and still have losses, the IRS allows you to wipe out up to exactly $3,000 of your W2 salary / ordinary income.

Laws & Principles

  • Wash-Sale Rule Danger (CRITICAL): This calculator assumes successful harvesting. If you sell a losing stock to harvest the loss, you are federally forbidden from buying a 'substantially identical' asset for 30 days. If you buy it back on day 15, the IRS 'washes' the trade — rejecting your entire tax loss.
  • The Almighty Carryforward: If you take a massive $100,000 loss in a market crash, you don't lose the shield. After using the $3,000 limit, the remaining $97,000 carries forward cleanly to next year. And the year after. And the year after. Unused losses essentially become an infinite, lifetime tax-insurance policy.

Step-by-Step Example Walkthrough

" An executive in the 32% tax bracket made $10,000 in short-term trading gains (normally taxed at $3,200). They decide to explicitly 'harvest' $15,000 by selling an underwater stock they lost faith in. "

  1. 1. Like-Kind Netting: The first $10k of the ST losses permanently annihilates the $10k of ST gains. The executive just legally saved exactly $3,200 in taxes.
  2. 2. The W2 Deduction: They still have $5k in ST losses remaining. The IRS allows exactly $3,000 to attack their normal W2 salary. At 32%, that saves an additional $960.
  3. 3. The Carryforward: The final $2k loss cannot be used this year. It legally carries over to next January 1st to be used against future gains.
Final Result: Total hard cash saved this year: $4,160. Total losses permanently loaded into the future: $2,000. This turns a market loss into guaranteed tax alpha.

Quick Answer: How does the Tax-Loss Harvesting Calculator work?

This tool simulates the exact IRS capital loss netting sequence used on Schedule D. Enter your realized short-term and long-term capital gains, your harvested losses in each category, and your marginal tax rates. The calculator then runs the mandatory like-kind netting, crossover netting, ordinary income deduction ($3,000 cap), and carryforward phases to show your total estimated tax savings and any loss balances that carry into future tax years. Results update instantly in your browser without requiring an account.

The IRS Loss Netting Formula & Sequence

Phase 1 — Like-Kind Netting (Mandatory First)

ST Losses → ST Gains   |   LT Losses → LT Gains

Phase 2 — Crossover Netting

Remaining ST Losses → LT Gains   (or vice-versa)

Phase 3 — Ordinary Income Shield

min(Remaining Losses, $3,000) → W-2 / Salary Income

Phase 4 — Carryforward

Unused Losses → Next Tax Year (infinite lifespan)

  • ST Gains— Capital gains from assets held less than 1 year. Taxed aggressively at your ordinary income rate (up to 37%).
  • LT Gains— Capital gains from assets held 1+ years. Structurally locked at preferential rates of 0%, 15%, or 20%.
  • $3,000 Limit— The IRS allows up to $3,000 of excess capital losses per year ($1,500 if Married Filing Separately) to offset ordinary W-2 or 1099 income.

Real-World Scenarios

✓ Day Trader — $4,160 Cash Saved

32% Federal bracket, harvesting underwater stock positions

  1. ST Trading Gains: $10,000 (would owe $3,200 tax)
  2. Harvested ST Losses: $15,000 (sold 3 losing stocks)
  3. Phase 1: $10k losses → $10k gains = $3,200 saved
  4. Phase 3: $3k of remaining $5k → W-2 = $960 saved
  5. Phase 4: $2k carries forward to next year

→ Total cash saved: $4,160. Plus $2,000 in losses loaded into future years as perpetual tax insurance.

✗ Crypto Crash — $100k+ Carryforward Shield

37% bracket, massive portfolio drawdown year

  1. LT Gains This Year: $0 (no winners sold)
  2. Harvested LT Crypto Losses: $120,000
  3. Phase 1 & 2: No gains to offset = $0 saved from netting
  4. Phase 3: $3,000 → W-2 salary = $1,110 saved
  5. Phase 4: $117,000 carries forward indefinitely

→ Only $1,110 saved this year — but $117k in losses is now a permanent shield. At $3k/year ordinary + any future gains, this balance may take decades to exhaust.

Capital Gains & Losses Netting Reference

Netting Phase IRS Priority Tax Value Saved
Phase 1 (Like-Kind) Mandatory First Match Matched at specific bracket rate (max value)
Phase 2 (Crossover) Secondary Netting Offset at target gain's bracket rate
Phase 3 (Ordinary) Capped at $3,000/yr Tied to top marginal income tax rate
Phase 4 (Carryforward) Infinite Lifespan Preserved shield for future tax years

Pro Tips & Common Pitfalls

Do This

  • ✓Harvest losses in December (Q4 sweep). While TLH is valid year-round, institutional investors explicitly scan portfolios in late Q4 to dump losing positions and maximize end-of-year tax shields. Run your own annual review before Dec 31.
  • ✓Swap to a correlated ETF to stay invested. To dodge a wash sale while maintaining sector exposure, sell one ETF and immediately buy a highly correlated competitor (e.g., swapping SPY for VOO). The IRS considers them distinct securities.
  • ✓Prioritize harvesting ST losses over LT losses. Short-term losses offset short-term gains first, which are taxed at your full income rate (up to 37%). This yields the highest per-dollar tax savings.

Avoid This

  • ✗Don't accidentally trigger a Wash Sale through DRIP. If your broker automatically reinvests dividends (DRIP) and buys fractional shares of a stock you just sold at a loss within the 30-day window, the IRS will disallow the loss on those shares.
  • ✗Don't try to harvest losses in tax-advantaged accounts. IRAs and 401(k)s are already insulated from capital gains taxes. Selling an asset at a loss inside a Roth IRA provides mathematically zero tax-loss harvesting benefit.
  • ✗Don't forget the 30-day window runs BOTH directions. The wash sale rule applies 30 days before AND 30 days after the sale date. If you bought shares of a stock 20 days ago and then sell it for a loss today, the loss is disallowed on those recently purchased shares.

Frequently Asked Questions

What is the 30-day Wash Sale rule?

The Wash Sale rule is an IRS regulation explicitly prohibiting you from claiming a capital loss if you repurchase a "substantially identical" security within 30 days before OR after the sale. If you do, the loss is disallowed and simply added back onto the cost basis of the newly purchased shares.

How many years can I carry forward my capital losses?

Indefinitely. The IRS allows capital loss carryforwards to last your entire lifetime. Assuming you have no capital gains to offset, you are allowed to deduct $3,000 per year against your ordinary income until the entire carried-over loss balance is fully exhausted.

Does tax-loss harvesting work for cryptocurrency?

Yes. The IRS treats cryptocurrency as property subject to standard capital gains netting processes. As of 2025, standard securities wash-sale rules have generally not strictly applied to crypto in the same capacity as equities, but legislative efforts are actively working to close that loophole. Always consult a licensed CPA for the most up-to-date rulings on digital asset harvesting.

Can I harvest losses from options contracts?

Yes. Losses from expired or sold equity options are standard capital losses subject to the same netting rules. An expired call option that you bought and lost money on counts as a short-term or long-term loss depending on how long you held it. However, wash sale rules still apply — if you sell an option at a loss and immediately buy a similar option on the same underlying, the loss may be disallowed.

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