Tax-Loss Harvesting Without the Wash

The deduction sitting in your red positions

Somewhere in your taxable account there is probably a lot showing red. Most attendings treat it as a mistake to be ignored until it recovers. The tax code treats it as an asset. Sell it, and the realized loss offsets your capital gains dollar for dollar with no ceiling — and then up to $3,000 of what remains offsets your ordinary income, the income taxed at your 35% or 37% marginal rate. At 35%, that single $3,000 offset is $1,050 of federal tax you do not pay, this year. Anything beyond $3,000 does not vanish. It carries forward indefinitely during your lifetime, absorbing future gains and peeling off $3,000 against ordinary income every year until it is exhausted. A large loss harvested once in a bad market can quietly reduce your taxes for a decade. The catch is a single rule from 1921: the wash sale. Rebuy the wrong thing in the wrong window — including through an autopilot purchase you forgot you scheduled — and the deduction is disallowed. In one specific case, it is destroyed permanently. This module covers the harvest, the arithmetic, and the traps, in that order.