Tax Gain-Loss Harvesting Aster billing

Tax gain-loss harvesting is another form of tax planning or management relating to investments. It is helpful because it can use a portfolio's losses to offset overall capital gains. According to the IRS, short and long-term capital losses must first be used to offset capital gains of the same type. In other words, long-term losses offset long-term gains before offsetting short-term gains. As of 2018, short-term capital gains, or earnings from assets owned for less than one year, are taxed at ordinary income rates. 

Long-term capital gains are taxed based on the tax bracket in which the taxpayer falls. 

• 0% tax for taxpayers in the lowest marginal tax brackets of 10% and 15%
• 15% tax for those in the 25%, 28%, 33%, and 35% tax brackets
• 20% tax of those in the highest tax bracket of 39%

For example, if an investor in a 25% tax bracket had $10,000 in long-term capital gains, there would be a tax liability of $1,500. If the same investor sold underperforming investments carrying $10,000 in long-term capital losses, the losses would offset the gains, resulting in a tax liability of 0. If the same losing investment were brought back, then a minimum of 30 days would have to pass to avoid incurring a wash sale.  

Up to $3,000 in capital losses may be used to offset ordinary income per tax year. For example, if the 52-year-old investor had $3,000 in net capital losses for the year, the $50,000 income will be adjusted to $47,000.  Remaining capital losses can be carried over with no expiration to offset future capital gains.

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