## Tax Loss Harvesting

To minimize tax liabilities, Tax Loss Harvesting is the practice of selling securities at a loss. Those Capital Losses are used to offset Capital Gains. Calculating Tax Loss Harvests gets a bit tricky and is best explained by the following example. In order for Tax Loss Harvesting to work, one needs to avoid triggering the Wash Sale Rule.

### EXAMPLE

Joe Schmo had the following tax consequences in a calendar year:

A total of $20,000 in long-term gains

A total of $5,000 in long-term losses

A total of $10,000 in short-term gains

A total of $15,000 in short-term losses

Create a table that looks like this, and net the results of the Long-term and Short-term columns:

Long-Term | Short-Term | |
---|---|---|

Gains | 20,000 | 10,000 |

Losses | -5,000 | -15,000 |

Net Gain/Loss | 15,000 | -5,000 |

Lastly, use the following algorithm, which in plain English means: If Net Long-term Gain/Loss and Net Short-term Gain/Loss are greater than zero, pay the corresponding rates (i.e. $xxx in Long-term gains & $yyy in Short-term gains). Otherwise, net the “Nets” meaning, net the Net Long-term Gain/Loss and Net Short-term Gain/Loss across the bottom row. If the absolute value of the Net Long-term Gail/Loss is greater than or equal to the absolute value of the Net Short-term Gain/Loss, the Net Gain/Loss is considered long-term. Otherwise, the Net Gain/Loss is considered short-term. In this example, the Gain/Loss is a $10,000 capital gain. Clear as mud, right? Thank you, Congress!