finance calculator
Estimate tax savings and loss carryforward by netting capital gains and harvestable losses.
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Estimated Tax Savings
$11,000
Pro Forma Tax Owed
$0
Tax codes change and capital gains fluctuate. Save this page to recalculate capital gains offsets and carryforward balances before executing year-end trades.
Formula
\text{Savings} = \text{Tax}_{\text{current}} - \text{Tax}_{\text{pro-forma}}Calculates tax reduction after netting capital gains and harvesting write-offs.
Step by step
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Summary
Tax Savings
$11,000
Net tax savings.
Pro Forma Tax
$0
Post-netting tax liability.
Current Tax
$11,000
Pre-netting tax liability.
Carryforward Loss
$17,000
Rollover capital losses.
D3 visualization
Current Tax Owed (before harvesting) vs. Pro Forma Tax Owed (after harvesting).
Guide
Tax loss harvesting is the strategy of selling investments that have lost value to offset capital gains tax liabilities. Under IRS guidelines, capital gains and losses must be netted using a strict sequence of steps.
Gains and losses are categorized by holding period: Short-Term (assets held for 1 year or less, taxed at ordinary income rates) and Long-Term (assets held for more than 1 year, taxed at lower preferential rates).
The capital netting process is performed as follows:
1. Net Short-Term: Subtract short-term capital losses from short-term capital gains to find Net Short-Term Capital Gain or Loss.
2. Net Long-Term: Subtract long-term capital losses from long-term capital gains to find Net Long-Term Capital Gain or Loss.
3. Cross-Netting: If one category is a net gain and the other is a net loss, offset the two. For example, a net short-term loss of $5,000 offsets a net long-term gain of $8,000, leaving a net long-term gain of $3,000.
If the netting process results in a net capital loss, investors can use up to $3,000 of that net loss to offset ordinary income (such as salary) in the current tax year:
$$\text{Ordinary Income Offset} = \min(\text{Net Capital Loss}, 3000)$$
Any remaining net capital loss exceeding the $3,000 limit cannot be deducted immediately. Instead, it must be carried forward to the following tax year as a capital loss carryforward, retaining its character (short-term or long-term) to offset future capital gains.
To claim a tax loss, investors must avoid the wash sale rule. A wash sale occurs if you sell a security at a loss and buy a "substantially identical" security within 30 days before or after the sale.
If a wash sale occurs, the tax loss is disallowed for the current year, and the loss amount is added to the cost basis of the newly purchased security, delaying the tax benefit.
Wash Sale
An IRS rule disallowing capital loss deductions for repurchased identical assets.
Capital Netting
The sequential process of offsetting capital gains and losses.
Cost Basis
The original purchase price of an asset, adjusted for splits, dividends, and wash sales.