Tax-Loss Harvesting Benefit Calculator

Estimate the immediate tax savings from harvesting a capital loss, weighed against the drag from holding a substitute position while you wait for the investment to recover.

Immediate tax benefit

$3,750

Realized at the 15% LTCG rate on a $25,000 loss.

Net benefit after drag

$2,625

Harvesting appears favorable after accounting for substitute-position drag.

Detailed results
Harvestable loss	$25,000
Estimated drag from substitute position0.5% annual drag × $75,000 × 3 years.	$1,125
Average annual benefit	$875

What this result means

Harvesting this loss generates an immediate tax savings of $3,750. After accounting for $1,125 of estimated drag from holding a substitute position over 3 years, the net benefit is $2,625. Harvesting is recommended.

Year-by-Year Benefit vs Drag

The tax benefit is realized in full at harvest (year 1). Drag from the substitute position accumulates each year. Net benefit declines as drag builds.

Year-by-Year Benefit vs Drag. 3 rows, first 3 shown.
Year	Cumulative Tax Benefit	Cumulative Drag	Net Benefit to Date
1	$3,750	$375	$3,375
2	$3,750	$750	$3,000
3	$3,750	$1,125	$2,625

How this is calculated

loss = cost_basis − current_value
immediate_tax_benefit = loss × tax_rate_applied
opportunity_cost = current_value × substitute_drag_pct × expected_recovery_years
net_benefit = immediate_tax_benefit − opportunity_cost

What is tax-loss harvesting?

Tax-loss harvesting (TLH) is the practice of selling an investment that has declined below your purchase price in order to realize the loss as a tax deduction. The loss offsets capital gains elsewhere in your portfolio, or — up to $3,000 per year — ordinary income. After selling, you immediately reinvest the proceeds in a similar (but not identical) asset to preserve your market exposure. The net effect is a tax saving today in exchange for a slightly different investment going forward.

The wash sale rule

The IRS wash sale rule prevents you from claiming a loss if you buy a "substantially identical" security within 30 days before or after the sale. If you sell a fund and buy the same fund back the next day, the loss is disallowed and instead added to the cost basis of the replacement shares. The rule applies across taxable accounts, IRAs, and even spousal accounts — so you cannot route around it by selling in one account and buying back in another.

Why a "similar but not identical" substitute?

The wash sale constraint pushes investors toward close substitutes rather than exact replacements. In practice this means swapping one S&P 500 ETF for a total-market ETF, or exchanging a sector fund for a broad-market fund covering the same exposure. The two funds will not behave identically — that difference is called tracking error, and it is the drag this calculator quantifies. Smaller tracking error is better, but zero tracking error would mean buying the same security back, triggering the wash sale.

When TLH does not help

If you are in the 0% long-term capital gains bracket (taxable income below roughly $47,000 for single filers in 2025), long-term losses provide no current benefit — you would not owe tax on the gain anyway. TLH is most valuable for investors in the 15%, 20%, or 23.8% LTCG brackets, and especially powerful when a short-term loss can offset ordinary income taxed at 22%–37%.

The deferred gain at swap-back

When you eventually sell the substitute position, the gain is measured from the new, lower cost basis (the price at which you bought the substitute). The deferred tax does not disappear — it reappears at that later sale. If the gain is then long-term, the deferred rate may be lower. If you hold until death, the step-up in basis eliminates the deferred gain entirely for heirs. This deferral value is not captured in the simple net-benefit calculation above.

Mutual funds vs ETFs for TLH

ETFs are generally more practical for tax-loss harvesting than mutual funds. ETF shares trade intraday, so you can sell one ETF and buy a substitute in the same minute without a gap in market exposure. Mutual fund transactions settle once daily at net asset value, creating at least one day of unhedged exposure during the swap. Additionally, ETFs that track different indexes from the same asset class are readily available — Vanguard, iShares, and Schwab each offer similar-but-not-identical index products — making it straightforward to find wash-sale-compliant substitutes.

Assumptions

The tax benefit is realized in the year of harvest and applied at a flat rate equal to your stated marginal rate; the calculator does not model the full bracket schedule or the $3,000 ordinary-income cap on net capital losses.
Drag from the substitute position is modelled as a fixed annual percentage of current market value and accumulates linearly — actual tracking error will vary each year.
State income taxes are not included; the net benefit may be higher in high-tax states (California, New York) and lower in states with no income tax.
The deferred gain arising when you eventually sell the substitute position is not included in the net benefit calculation; the long-term value depends on your future tax rate and whether you hold until death.
The wash sale rule is assumed to be respected; the calculator does not validate that the substitute security meets IRS 'not substantially identical' criteria.

Frequently asked questions

›What is the wash sale rule?

The wash sale rule disallows a capital loss if you purchase a substantially identical security within 30 days before or after the sale. The disallowed loss is added to the cost basis of the replacement shares rather than disappearing — but the timing of the deduction is deferred until you sell the replacement. The rule applies across all your accounts, including IRAs and your spouse's accounts.

›Can I harvest a loss and immediately rebuy the same stock?

No. Buying the same security within 30 days of the sale triggers the wash sale rule, and the IRS will disallow the loss. You must wait at least 31 days, or buy a similar-but-not-identical security immediately. Most investors opt for the substitute-immediately approach to avoid being out of the market.

›Does TLH work in a 0% capital gains bracket?

Not for long-term losses against long-term gains, because you would not owe tax on those gains anyway. TLH is most beneficial when you have gains in higher brackets (15%, 20%, 23.8%) or when a short-term loss can offset ordinary income. If all your realized gains would be taxed at 0%, harvesting losses produces no immediate saving.

›Is the tax benefit permanent?

No — it is a deferral, not elimination. When you eventually sell the substitute position, the lower cost basis produces a larger gain, and that gain is taxed. The benefit is real because a dollar of tax saved today is worth more than a dollar paid later. If you hold the substitute until death, the step-up in basis for heirs can eliminate the deferred gain entirely.

›How does TLH work with mutual funds vs ETFs?

ETFs are generally easier to use for TLH because they trade intraday, allowing you to sell one fund and immediately buy a substitute without any gap in market exposure. Mutual fund transactions settle once per day at net asset value, leaving at least one day of unhedged exposure during the swap. ETFs also make it simpler to find wash-sale-compliant substitutes since several providers offer index funds covering similar but non-identical benchmarks.