Tax Loss Realization is a Savvy Way for Investors to Reduce Tax Liabilities
An advantage of having taxable accounts in your portfolio is the ability to use losses (when available) to lower your tax liabilities. This is called tax loss harvesting or tax loss realization. Here are the benefits:
- Tax losses represent a deferral of capital gains into the future, and could even eliminate them entirely when you die.
- After offsetting realized gains, you can use any remaining tax losses to deduct some portion of your earned income each year, and
- Remaining losses are rolled over into the subsequent years, so you can defer your capital gains or offset your earned income.