Updated October 2, 2026. Quick answer: Tax loss harvesting means selling investments at a loss so the loss offsets capital gains, and up to $3,000 of other income ($1,500 if married filing separately). The tax year is set by the trade date, not the settlement date, so a sale made on Thursday, December 31, 2026 (computed here) counts for 2026. Unused losses carry over to later years. A repurchase within 30 days before or after the sale can turn it into a wash sale.
More IRS forms and schedules, read line by line: Form 6198 instructions.
Price a sale against the 2026 capital gains rates: capital gains tax calculator.
The year-end date that matters (as of 2026-10-02)
For 2026, the last calendar day is Thursday, December 31, 2026. The weekday is computed here from the calendar, not stated by the IRS. For listed securities, Pub. 550 says the sale date that counts is the trade date: “Do not confuse the trade date with the settlement date. The settlement date is the date by which the stock must be delivered and payment must be made.”
Its example follows a sale on the last day of the year: “You sold stock on December 31, 2025. According to the rules of the stock exchange, the sale was closed by delivery of the stock and payment of the sale price in January 2026.” The result: “Report your gain or loss on your 2025 return, even though you received the payment in 2026.” Shifted forward one year, the same reading applies to a trade on December 31, 2026. Whether a particular broker and market are open that day is not addressed by the sources read.
The $3,000 limit and $1,500 if married filing separately
Losses first offset gains. After that, a limit applies: “Your allowable capital loss deduction, figured on Schedule D (Form 1040), 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 of Schedule D (Form 1040).” The Schedule D instructions put it in one sentence: “You can deduct capital losses up to the amount of your capital gains plus $3,000 ($1,500 if married filing separately).”
Carryover of unused losses
“you can carry over the unused part to the next year and treat it as if you had incurred it in that next year.” “If part of the loss is still unused, you can carry it over to later years until it is completely used up.” The character stays the same: “When you carry over a loss, it remains long-term or short-term.”
Pub. 550 works through a case: “On their joint 2025 return, they can deduct $3,000.” On a $7,000 loss, $4,000 carries to 2026. For the arithmetic the publication points to a form: “Complete Worksheet 4-1 to determine the part of your capital loss that you can carry over.” The Schedule D instructions confirm the next step: “To figure any capital loss carryover to 2026, you will use the Capital Loss Carryover Worksheet in the 2026 Instructions for Schedule D.”
The wash sale window
A harvested loss is disallowed for the year if a replacement purchase lands in the window. The window is “within 30 days before or after the sale”, which is 61 days counting the sale day (computed here). A sale on Tuesday, December 1, 2026 has a window from November 1 to December 31, 2026 (both computed here). A year-end sale is therefore also affected by purchases made in early January, since the 30 days after reach into the next year.
The full rule, including IRA and spouse purchases, is on the wash sale rule page. The rule is reported with code W, as covered on the Form 8949 page.
When harvesting helps, stated plainly
The sources support a short list of facts, not a recommendation.
- A loss is useful for tax purposes only where it offsets capital gains or ordinary income up to the limit above.
- A net loss beyond the limit is not wasted. It carries over, in the order Pub. 550 sets: “When you figure your capital loss carryover, use your short-term capital losses first, even if you incurred them after a long-term capital loss.”
- The loss is a deferral rather than a reduction in the investment: with a wash sale, the disallowed amount is added to the basis of the replacement shares.
For example, losses of $10,000 and gains of $4,000 give a net loss of $6,000 (computed here). The $3,000 limit is used and $3,000 carries over, ignoring the taxable income test in Worksheet 4-1. Related pages: the harvest helper and the gain harvest window.
Reporting a harvested loss
Each sale goes on Form 8949 with its box. “Be sure to report all of your capital gains and losses even if you can’t use all of your losses in 2025.” The sources read were the 2025 Pub. 550 and Schedule D instructions, the revisions the IRS served on 2026-10-02 for returns filed in 2026. A later revision can change line numbers; no 2026 form content is described here.
Common mistakes
- Planning around the settlement date. For listed securities the IRS says the trade date, not the settlement date, sets the year.
- Buying the same fund back within 30 days after the sale and assuming the loss still counts.
- Counting the $3,000 as the cap on harvested losses. It is the cap on the deduction beyond gains; the rest carries over.
Related: the wash sale rule, Form 8949 instructions, Schedule D (Form 1040), long-term capital gains brackets, and the capital loss harvest helper.
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Answer againSources
- IRS Publication 550, Investment Income and Expenses (2025): https://www.irs.gov/pub/irs-pdf/p550.pdf
- Instructions for Schedule D (Form 1040) (2025): https://www.irs.gov/pub/irs-pdf/i1040sd.pdf
Read from the IRS documents linked above on October 2, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.