A harvested loss is worth 24 cents, 15 cents or nothing per dollar
Capital losses offset gains, then $3,000 of ordinary income a year; the rest carries forward. Rebuy within 30 days and the loss moves into the new basis.
◆ The Signal
30-second read
- What happened
- IRS Publication 550 (for 2025 returns) and Tax Topic 409 (updated September 24, 2026) set the rules: net capital losses reduce ordinary income by at most $3,000 a year ($1,500 married filing separately), the unused part carries forward with no time limit, and a loss is disallowed if substantially identical stock is bought within 30 days before or after the sale, including inside an IRA.
- Why
- A realised loss first nets against gains of the same holding period, then across periods. What it is worth depends on the rate of the income it displaces: 24% for ordinary income and short-term gains in the 24% bracket, 15% or 0% for long-term gains at 2026 thresholds. A wash sale does not destroy the loss; it is added to the basis of the replacement shares.
- The numbers that matter
- $3,000Annual cap on net capital loss against ordinary income; $1,500 married filing separately (Pub 550)30 daysWindow before and after a loss sale in which buying substantially identical stock disallows the loss (Pub 550)$98,900Taxable income up to which the long-term rate is 0% for joint filers in 2026 (Rev. Proc. 2025-32)$1,680Year-one tax saved on a $10,000 loss against $4,000 of short-term gains in the 24% bracket (calculation)
- Why it matters
- A $10,000 loss in a 24% household saves $1,320 to $1,680 in the first year and leaves $3,000 to carry forward; rebuying inside the 30-day window defers the whole saving.
- What happens nextas we saw it on 20 Oct 2026
- Pub 550 says a sale of listed securities belongs to the year of the trade date, not settlement. A trade dated December 31, 2026 is a 2026 event; one dated January 2, 2027 is not.
Tax-loss harvesting
The same dollar of loss is worth 24 cents against ordinary income or short-term gains in the 24% bracket, 15 cents against most long-term gains, and nothing against gains already taxed at 0%.
| Ordinary income, up to $3,000 a year | 24 |
|---|---|
| Short-term gain (ordinary rate) | 24 |
| Long-term gain, 15% band | 15 |
| Long-term gain, income at or below $98,900 | 0 |
Cents of federal tax saved per dollar of loss; married filing jointly, taxable income $211,400 to $403,550 unless statedSource: IRS, Rev. Proc. 2025-32 (IR-2025-103, October 9, 2025); IRS Tax Topic 409; calculation
Go deeper
A dollar of investment loss realised in 2026 is not worth a fixed amount. Against a short-term gain or ordinary income in the 24% bracket it saves 24 cents of federal tax. Against a long-term gain it saves 15 cents for most households, and nothing for a couple whose taxable income is at or below $98,900, because that gain was taxed at 0% to begin with. What differs is the rate of the income the loss displaces.
The rules are in IRS Publication 550, the edition for 2025 returns, and Tax Topic 409, last updated September 24, 2026. The 2026 thresholds are in Revenue Procedure 2025-32 of October 9, 2025. This piece reads those documents and does the arithmetic. It does not say whether anyone should sell anything.
The netting order and the $3,000 cap
Fact
Losses net short against short, long against long, then across
Publication 550 says property held 1 year or less gives a short-term gain or loss, and more than 1 year a long-term one. Short-term gains and losses, including any carryover, combine on Schedule D line 7; long-term ones on line 15. Then “combine your net short-term capital gain or loss (Schedule D (Form 1040), line 7) with your net long-term capital gain or loss” (line 15), and enter the result on line 16.
Publication 550 says property held 1 year or less gives a short-term gain or loss, and more than 1 year a long-term one. Short-term gains and losses, including any carryover, combine on Schedule D line 7; long-term ones on line 15. Then “combine your net short-term capital gain or loss (Schedule D (Form 1040), line 7) with your net long-term capital gain or loss” (line 15), and enter the result on line 16.
Fact
If line 16 is a loss, at most $3,000 reduces other income in the year; the rest carries forward with no expiry
Pub 550: the allowable deduction “is the lesser of: $3,000 ($1,500 if you are married and file a separate return), or your total net loss as shown on line 16.” The unused part carries “to later years until it is completely used up.” Topic 409 says the same. Neither puts a time limit on the carryover. The IRS's own example: a $7,000 loss, $3,000 deducted, $4,000 carried.
Pub 550: the allowable deduction “is the lesser of: $3,000 ($1,500 if you are married and file a separate return), or your total net loss as shown on line 16.” The unused part carries “to later years until it is completely used up.” Topic 409 says the same. Neither puts a time limit on the carryover. The IRS's own example: a $7,000 loss, $3,000 deducted, $4,000 carried.
Fact
A carried loss keeps its character, and short-term losses are used first
Pub 550: “When you carry over a loss, it remains long-term or short-term. A long-term capital loss you carry over to the next tax year will reduce that year's long-term capital gains before it reduces that year's short-term capital gains.” The order matters: a long-term carryover is first spent against gains taxed at 15% or 0%.
Pub 550: “When you carry over a loss, it remains long-term or short-term. A long-term capital loss you carry over to the next tax year will reduce that year's long-term capital gains before it reduces that year's short-term capital gains.” The order matters: a long-term carryover is first spent against gains taxed at 15% or 0%.
$3,000
Net capital loss deductible against ordinary income per year
$1,500 if married filing separately; Pub 550, Topic 409
30 days
Before or after the loss sale: the wash-sale window
Pub 550; 61 calendar days including the sale date (calculation)
$1,050
Basis of replacement shares in Pub 550's own example
$800 cost plus $250 disallowed loss
What a $10,000 loss is worth in year one
Take a married couple filing jointly with taxable income inside the 24% bracket, which Rev. Proc. 2025-32 sets at $211,400 to $403,550 for 2026. During 2026 they realise $4,000 of gains and, in December, a $10,000 loss.
Wealth Signal calculation
If the $4,000 of gains are short-term: $1,680 saved in 2026, $3,000 carried to 2027
Net loss on line 16: $4,000 − $10,000 = −$6,000. Short-term gains are taxed at the ordinary 24% rate, so offsetting them saves $4,000 × 24% = $960. Of the remaining $6,000, $3,000 reduces ordinary income: $3,000 × 24% = $720. Year one: $960 + $720 = $1,680. Carryforward: $6,000 − $3,000 = $3,000, worth a further $720 if later used against ordinary income at 24%.
Net loss on line 16: $4,000 − $10,000 = −$6,000. Short-term gains are taxed at the ordinary 24% rate, so offsetting them saves $4,000 × 24% = $960. Of the remaining $6,000, $3,000 reduces ordinary income: $3,000 × 24% = $720. Year one: $960 + $720 = $1,680. Carryforward: $6,000 − $3,000 = $3,000, worth a further $720 if later used against ordinary income at 24%.
Wealth Signal calculation
If the $4,000 of gains are long-term: $1,320 saved, same $3,000 carried
At $211,400 to $403,550 of taxable income the couple's long-term rate is 15%, because Rev. Proc. 2025-32 puts the 2026 “maximum 15-percent rate amount” for joint filers at $613,700. Offsetting $4,000 of long-term gains saves $4,000 × 15% = $600. The $3,000 against ordinary income still saves $720. Year one: $600 + $720 = $1,320. The same loss is worth $360 less because the gains it met were taxed at a lower rate. At or below $98,900 of joint taxable income the long-term rate is 0%, so $4,000 × 0% = $0: the loss is spent and nothing is saved.
At $211,400 to $403,550 of taxable income the couple's long-term rate is 15%, because Rev. Proc. 2025-32 puts the 2026 “maximum 15-percent rate amount” for joint filers at $613,700. Offsetting $4,000 of long-term gains saves $4,000 × 15% = $600. The $3,000 against ordinary income still saves $720. Year one: $600 + $720 = $1,320. The same loss is worth $360 less because the gains it met were taxed at a lower rate. At or below $98,900 of joint taxable income the long-term rate is 0%, so $4,000 × 0% = $0: the loss is spent and nothing is saved.
| Filing status | 0% rate up to | 15% rate up to | 20% above |
|---|---|---|---|
| Married filing jointly | $98,900 | $613,700 | $613,700 |
| Single | $49,450 | $545,500 | $545,500 |
| Head of household | $66,200 | $579,600 | $579,600 |
| Married filing separately | $49,450 | $306,850 | $306,850 |
Source: IRS, Rev. Proc. 2025-32, section 4.03, taxable years beginning in 2026. The 24% ordinary bracket for 2026 runs from $105,700 to $201,775 (single) and $211,400 to $403,550 (joint), per IR-2025-103, October 9, 2025. Full tables are in the capital gains brackets piece.
The wash-sale rule in Pub 550's words
Fact
Buy substantially identical stock within 30 days either side of a loss sale and the loss is disallowed, including a purchase in an IRA
Pub 550: “A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you” buy substantially identical stock or securities, acquire them in a fully taxable trade, acquire a contract or option to buy them, or “acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.” A purchase by “your spouse or a corporation you control” also counts. The publication never says “61 days”, but 30 before, the sale date and 30 after add up to 61: a sale on December 15, 2026 has a window from November 15, 2026 to January 14, 2027.
Pub 550: “A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you” buy substantially identical stock or securities, acquire them in a fully taxable trade, acquire a contract or option to buy them, or “acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.” A purchase by “your spouse or a corporation you control” also counts. The publication never says “61 days”, but 30 before, the sale date and 30 after add up to 61: a sale on December 15, 2026 has a window from November 15, 2026 to January 14, 2027.
Fact
“Substantially identical” is a facts-and-circumstances test; stock of different companies ordinarily is not
Pub 550: “you must consider all the facts and circumstances in your particular case. Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation.” Its exceptions are reorganisations and convertibles that track the common. The section does not mention mutual funds or ETFs.
Pub 550: “you must consider all the facts and circumstances in your particular case. Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation.” Its exceptions are reorganisations and convertibles that track the common. The section does not mention mutual funds or ETFs.
Fact
The disallowed loss is added to the basis of the new shares; in an IRA it is simply gone
Pub 550: “add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities.” The old holding period carries over too. Item (4) is the IRA purchase. Revenue Ruling 2008-5, in Internal Revenue Bulletin 2008-3 of January 22, 2008, holds that such a loss “is disallowed under § 1091” and that the taxpayer's “basis in the individual retirement account or Roth IRA is not increased by virtue of § 1091(d).”
Pub 550: “add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities.” The old holding period carries over too. Item (4) is the IRA purchase. Revenue Ruling 2008-5, in Internal Revenue Bulletin 2008-3 of January 22, 2008, holds that such a loss “is disallowed under § 1091” and that the taxpayer's “basis in the individual retirement account or Roth IRA is not increased by virtue of § 1091(d).”
Wealth Signal calculation
A wash sale defers the loss rather than removing it
An investor bought 100 shares for $10,000 and sells them for $7,000 on December 10, 2026, a $3,000 loss. On December 30, 2026 they buy 100 shares of the same stock for $7,200. The loss is disallowed and the new basis is $7,200 + $3,000 = $10,200. If the shares are later sold for $9,000, the recognised result is $9,000 − $10,200 = −$1,200. Without the wash sale the two trades would have produced −$3,000 and then +$1,800, also −$1,200. What the rule changes is the year in which the $3,000 can be used.
An investor bought 100 shares for $10,000 and sells them for $7,000 on December 10, 2026, a $3,000 loss. On December 30, 2026 they buy 100 shares of the same stock for $7,200. The loss is disallowed and the new basis is $7,200 + $3,000 = $10,200. If the shares are later sold for $9,000, the recognised result is $9,000 − $10,200 = −$1,200. Without the wash sale the two trades would have produced −$3,000 and then +$1,800, also −$1,200. What the rule changes is the year in which the $3,000 can be used.
Brokers report only part of this. Pub 550 says Form 1099-B box 1g shows the disallowed amount only when the replacement shares “were bought in the same account,” and that the loss is not deductible “even if it is not reported on Form 1099-B.”
Crypto: what the text says and does not say
Fact
Pub 550 treats digital assets as property, and its wash-sale section does not mention them
Pub 550 states that “a digital asset is treated as property, and general tax principles that apply to property transactions apply,” citing Notice 2014-21 (2014-16 I.R.B. 938). The wash-sale section refers throughout to “stock or securities” and contains no reference to digital assets, virtual currency or cryptocurrency. The 2025 Instructions for Schedule D, last updated April 30, 2026, add one sentence: “The wash sale rules generally apply to transactions involving digital assets that are also stock or securities for tax purposes (tokenized securities).” That is the extent of the IRS text found. It does not say the rule applies to other digital assets, and it does not say it does not.
Pub 550 states that “a digital asset is treated as property, and general tax principles that apply to property transactions apply,” citing Notice 2014-21 (2014-16 I.R.B. 938). The wash-sale section refers throughout to “stock or securities” and contains no reference to digital assets, virtual currency or cryptocurrency. The 2025 Instructions for Schedule D, last updated April 30, 2026, add one sentence: “The wash sale rules generally apply to transactions involving digital assets that are also stock or securities for tax purposes (tokenized securities).” That is the extent of the IRS text found. It does not say the rule applies to other digital assets, and it does not say it does not.
Trade date, not settlement date
Fact
A sale of listed securities belongs to the year of the trade date
Pub 550, under “Securities traded on an established market”: the holding period “begins the day after the trade date you bought the securities, and ends on the trade date you sold them,” with a caution: “Do not confuse the trade date with the settlement date.” Its example is a taxpayer who sold stock on December 31, 2025 with delivery and payment in January 2026: “Report your gain or loss on your 2025 return, even though you received the payment in 2026.” The Form 8949 instructions say the same for column (c). For 2026 the equivalent date is December 31, 2026, a Thursday. The wash-sale window also runs across the year end: a loss sale on December 20, 2026 is inside it until January 19, 2027.
Pub 550, under “Securities traded on an established market”: the holding period “begins the day after the trade date you bought the securities, and ends on the trade date you sold them,” with a caution: “Do not confuse the trade date with the settlement date.” Its example is a taxpayer who sold stock on December 31, 2025 with delivery and payment in January 2026: “Report your gain or loss on your 2025 return, even though you received the payment in 2026.” The Form 8949 instructions say the same for column (c). For 2026 the equivalent date is December 31, 2026, a Thursday. The wash-sale window also runs across the year end: a loss sale on December 20, 2026 is inside it until January 19, 2027.
What it means for your money
Four pieces of arithmetic, none of which depends on where prices go next.
- Value per dollar. A loss is worth the rate of the income it displaces: 24 cents against short-term gains or the first $3,000 of ordinary income in the 24% bracket, 15 cents against long-term gains, nothing against a long-term gain taxed at 0%.
- The cap. After gains are offset, $3,000 a year is the most that reduces wages, interest or pension income. A $20,000 net loss with no future gains takes seven tax years to use.
- The window. 30 days before and after, across every account the household controls, including IRAs and a spouse's account. An IRA purchase removes the loss outright; a taxable one defers it into the new basis.
- The calendar. The trade date decides the year. December 31, 2026 is the last 2026 trade date; settlement in January 2027 does not move it.
Harvesting also lowers the basis of what is held afterwards. Sell at $7,000, buy a non-identical holding for $7,000, and a later recovery to $10,000 is a $3,000 taxable gain rather than a return to break-even. The loss and the later gain cancel in dollars; the benefit, if any, is the gap between the rate at which the loss was used and the rate at which the gain is eventually taxed, plus the time between them. The loss recovery tool covers the percentage side.
This article does not say whether any reader should sell a holding, buy it back, or realise a loss. It does not claim that the wash-sale rule applies or does not apply to digital assets other than tokenized securities; the IRS text quoted is the full extent of what was found. It does not claim that two funds tracking the same index are or are not “substantially identical”; Pub 550 does not address the question. Sources are Publication 550 (for 2025 returns), the 2025 Schedule D and Form 8949 instructions, Tax Topic 409, Revenue Ruling 2008-5 and Revenue Procedure 2025-32. State taxes are ignored. The $10,000 and $3,000 examples are illustrations, not a forecast of any outcome. Nothing here is tax advice.
Sources
- Publication 550 (2025), Investment Income and Expenses (for use in preparing 2025 returns)Internal Revenue Service · Oct 20, 2026 · Primary source
- Topic No. 409, Capital Gains and Losses (page last reviewed or updated September 24, 2026)Internal Revenue Service · Oct 20, 2026 · Primary source
- Instructions for Schedule D (Form 1040) (2025), Capital Gains and Losses (page last reviewed or updated April 30, 2026)Internal Revenue Service · Oct 20, 2026 · Primary source
- Instructions for Form 8949 (2025), Sales and Other Dispositions of Capital AssetsInternal Revenue Service · Oct 20, 2026 · Primary source
- Revenue Ruling 2008-5, Internal Revenue Bulletin 2008-3 (January 22, 2008)Internal Revenue Service · Oct 20, 2026 · Primary source
- Revenue Procedure 2025-32, inflation adjustments for taxable years beginning in 2026 (section 4.01 tax rate tables; section 4.03 maximum capital gains rate)Internal Revenue Service · Oct 20, 2026 · Primary source
- IR-2025-103, IRS releases tax inflation adjustments for tax year 2026 (October 9, 2025)Internal Revenue Service · Oct 20, 2026 · Primary source
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