Using Tax-Loss Harvesting Beyond Year-End

Background and why year-round harvesting matters

Tax-loss harvesting traditionally gets attention in December, when investors tally gains and losses before year-end. But effective harvesting is not a once-a-year chore — it’s a tax-aware element of ongoing portfolio management. In my practice advising individuals and small-business owners, I’ve seen clients realize better tax outcomes and smoother cashflow by monitoring loss and gain opportunities continuously rather than waiting until December.

Why this matters now:

• Market volatility creates opportunities at any time of year. Selling losses when they occur avoids the risk that a temporary decline reverses before year-end.
• Proactive harvesting can manage taxable events from concentrated sales, option exercises, or business liquidity events as they happen.
• Spreading harvesting across the year helps manage marginal tax brackets and limits the need for larger tax planning moves in a single year.

Authority and rules to remember

Tax-loss harvesting is governed by the capital gains and losses rules in the Internal Revenue Code and implemented in practice via Form 8949 and Schedule D on your federal return (see IRS Form 8949 guidance) (IRS Form 8949). The annual capital loss deduction limit for individuals is still $3,000 against ordinary income ($1,500 if married filing separately); excess losses carry forward to future years (IRS Publication 550). Always confirm the latest IRS guidance or consult a tax pro for changes after 2025.

How tax-loss harvesting actually works (step-by-step)

1. Identify realized gains and unrealized losses. Review taxable accounts for positions with embedded gains you plan to sell and holdings currently trading below your cost basis.
2. Prioritize offset opportunities. Short-term gains are taxed at higher rates than long-term gains, so losses used against short-term gains provide larger tax savings. Also consider current and projected marginal tax rates.
3. Execute the loss sale. Sell the underperforming position in your taxable account to lock in the loss.
4. Reestablish exposure without triggering a wash sale. Immediately replace the position with a different security that maintains similar market exposure (for example, a different ETF or mutual fund with a similar strategy) but is not “substantially identical.” See the section on wash sales below.
5. Report on Form 8949 and Schedule D. Keep trade confirmations and cost-basis records; you’ll report transactions on Form 8949 and summarize on Schedule D (IRS Form 8949).

Real-world example

A client held a biotech stock purchased for $100,000 that fell to $70,000 and also had a short-term gain of $40,000 from selling a concentrated tech position. Selling the biotech stock realized a $30,000 loss that first offsets the short-term $40,000 gain (reducing taxable short-term gain to $10,000). The client still has $10,000 of loss that can offset long-term gains or $3,000 against ordinary income this tax year, with the remainder carried forward (IRS rules on capital loss carryforwards).

Who benefits from year‑round tax‑loss harvesting

• Taxable account investors who regularly realize gains from sales, option exercises, or stock compensation exercises.
• High-net-worth individuals with unpredictable liquidity events.
• Investors seeking to manage marginal tax rates over multiple years.
• Owners of volatile assets (individual equities, sector funds, and cryptocurrencies) where frequent drawdowns create harvesting opportunities.

Key rule: the wash sale and how to avoid it

The wash sale rule disallows a loss deduction if you (or your spouse/IRA) buy the same or a “substantially identical” security within 30 days before or after the sale. The rule also applies if an IRA or Roth IRA acquires the same security within that 61-day window (30 days before and 30 days after the sale date plus the sale day). See our detailed coverage of the Wash-Sale Rule for examples and edge cases.

Practical ways to avoid a wash sale while preserving market exposure:

• Buy a similar, but not substantially identical, ETF (e.g., sell a large‑cap growth ETF and buy a different large‑cap growth ETF from another issuer).
• Use sector or factor ETFs that track the same exposure but have different holdings.
• Wait 31 days and park proceeds in cash or a money market fund — this preserves the strict tax treatment but opens you to market risk.
• Use tax‑lot accounting to select specific lots and avoid accidental repurchases that trigger a wash sale.

Reporting and recordkeeping

• Report each sale on Form 8949 and summarize totals on Schedule D. Cryptocurrency and many digital asset sales are treated like other capital assets and follow the same reporting rules (see our article on Form 8949 for crypto reporting details: Form 8949).
• Keep broker trade confirmations and year-end statements. The IRS and brokers may report proceeds and basis; reconciling those amounts reduces mistakes and audit triggers.

Common mistakes and how to avoid them

• Waiting until year-end: you may miss losses that recover before December or be forced into suboptimal trades.
• Ignoring the wash-sale rule: repurchasing the same security inside the 61-day window can disallow the loss and complicate basis tracking.
• Using tax‑deferred accounts: selling at a loss inside an IRA or 401(k) generally doesn’t provide a tax benefit; losses in tax-deferred accounts do not produce deductible losses.
• Poor recordkeeping: without accurate lot-level cost basis and wash sale tracking, you can misreport losses and carryforwards.

Year‑round vs. automated harvesting services

Many robo-advisors and wealth managers offer automated tax-loss harvesting, which can be effective for broad, ETF‑based portfolios. However, automated tools may not account for concentrated positions, option trades, or individual tax situations. In my experience, combining automation for broad exposure with manual oversight for concentrated or complex positions typically yields the best outcomes.

Advanced considerations

• Managing marginal tax brackets: harvesting in lower-income years can convert potential future taxable gains into basis increases when you harvest losses carried forward.
• Harvesting for step-up planning: realize losses ahead of an expected sale to offset future taxable gains from a business or real estate transaction.
• Interaction with Roth conversions and IRMAA: realize that harvesting and Roth conversions can interact with income-based Medicare premiums — coordinate timing with your tax advisor.

Practical checklist for implementing year-round harvesting

1. Run a quarterly or monthly review of taxable accounts for loss opportunities.
2. Flag concentrated holdings and set guardrails for partial sales.
3. Use non‑substantially identical replacements to avoid wash sale risk.
4. Track lot-level basis and wash-sale adjustments in a spreadsheet or tax software.
5. Reconcile broker cost-basis reports before filing and report sales on Form 8949.

Further reading and internal resources

• For the technical wash sale rules and examples, read our Wash-Sale Rule overview: Wash-Sale Rule.
• For transaction-level reporting details, see our guide to Form 8949 and crypto reporting: Form 8949.
• For broader harvesting strategies and tax‑aware allocation, explore our Tax-Loss Harvesting glossary page and related strategy pieces: Tax-Loss Harvesting.

Frequently asked questions (brief)

Q: Can I harvest losses in an IRA? A: No — losses in traditional IRAs or 401(k)s generally don’t produce deductible losses; and if you repurchase in an IRA within the wash sale window after a taxable sale, the loss could be disallowed.

Q: Will harvesting hurt my returns? A: If done thoughtfully (replacing exposure or reentering the market at an appropriate time), harvesting shouldn’t harm long‑term returns and can improve after‑tax performance.

Q: What if my broker consolidates cost‑basis reporting incorrectly? A: Reconcile broker statements, keep trade confirmations, and adjust Form 8949 entries as needed. Consult a tax pro when in doubt.

Conclusion

Year‑round tax‑loss harvesting is a practical, rules-based strategy to reduce taxable gains, manage taxable income, and improve after-tax returns when executed with attention to the wash sale rule and proper reporting. Whether you use automated tools or work with a financial planner, build a documented process for identifying opportunities, replacing exposure correctly, and keeping clean records.

Professional disclaimer

This article is educational and does not constitute personalized tax or investment advice. Laws and forms change; consult a qualified tax advisor or financial planner for advice tailored to your situation.

Authoritative sources

• IRS Publication 550, Investment Income and Expenses: https://www.irs.gov/publications/p550
• IRS About Form 8949, Sales and Other Dispositions of Capital Assets: https://www.irs.gov/forms-pubs/about-form-8949
• FinHelp glossary: Wash-Sale Rule: https://finhelp.io/glossary/wash-sale-rule/
• FinHelp glossary: Form 8949 (reporting guidance): https://finhelp.io/glossary/form-8949-sales-and-other-dispositions-of-capital-assets/