The Market Is at a Record and You Still Own Losers. Is Tax-Loss Harvesting Worth It Before December 31?

The S&P 500 and Nasdaq set record closes this week, which makes it a strange time to talk about losses. But an index at a high says nothing about the stocks inside your account. Nike is down about 49% over the past year, Lennar 34%, Home Depot 26%, and plenty of smaller names are down more. If you hold any of them in a taxable account, the loss is sitting there unused, and it has a deadline: it only counts against this year's taxes if you sell by December 31. This post explains what selling actually buys you, in dollars, and who should not bother.

What harvesting actually does

You own a stock you paid $30,000 for and it is now worth $20,000. Sell it, and you realize a $10,000 capital loss. That loss offsets capital gains you made elsewhere this year, dollar for dollar. If there is loss left over, up to $3,000 of it comes off your ordinary income, wages included, and anything beyond that carries forward to future years for as long as you live.

Here is the part most articles skip. If you buy a replacement investment with the $20,000, your cost basis in the replacement is $20,000, not $30,000. When you eventually sell it, the $10,000 of gain you avoided today comes back. So harvesting is mostly a deferral, not an escape, and its value comes from three places:

• Timing. Tax paid in five years costs less than tax paid now. At a 5% discount rate, $1,500 due in five years is worth about $1,175 today.
• Rates. A loss that offsets short-term gains, or wages through the $3,000 rule, saves tax at your ordinary bracket, up to 37%. The gain that comes back later, on a replacement held more than a year, is taxed at the long-term rate, 15% for most people. Saving at 24% and repaying at 15% is a real profit.
• Escape. If you hold the replacement until death, your heirs inherit it at its value on that date and the deferred gain is never taxed. Give it to charity and the same thing happens.

The same $10,000 loss, five different people

The tax-loss harvesting calculator does this arithmetic for your own numbers. Below is what it produces for a $10,000 loss, assuming the replacement is sold after five years at a 15% long-term rate and a 5% time value of money.

Three things to take from the table. The rate mismatch is where the money is: a loss against short-term gains or wages is worth four times as much as the same loss against long-term gains. The long-term-versus-long-term case is a modest win, worth doing if the trade is free but not worth agonizing over. And the last row is the trap: if your taxable income in 2026 is under $49,450 single or $98,900 married filing jointly, your long-term capital-gains rate is 0%, so offsetting long-term gains saves you nothing. Worse, harvesting to offset short-term gains at 12% and then paying 15% on the replacement later nets you about $25 on $10,000. Check your bracket with the tax bracket explainer before you sell anything.

The $3,000 rule and the carryforward

When your losses exceed your gains, the leftover does two things. Up to $3,000 a year ($1,500 if married filing separately) is deducted from ordinary income, and because wages are taxed at your full bracket, that is the most valuable dollar in the whole exercise. The rest carries forward indefinitely and offsets gains in future years, then $3,000 of income a year again.

Worked through: a $25,000 loss against $5,000 of long-term gains in the 24% bracket. The $5,000 is offset, saving $750. Then $3,000 comes off wages, saving $720. The remaining $17,000 carries into 2027 and beyond. This year's saving is $1,470; the calculator's net after the deferred tax is about $530, and the $17,000 carryforward is a bank of future deductions that most people forget they have. Keep the record; brokers do not track carryforwards for you, your tax software does.

The wash-sale rule, in one paragraph

If you buy the same security, or one "substantially identical," within 30 days before or 30 days after the sale, the loss is disallowed for this year. That is a 61-day window, it counts every account you own including your IRA and your spouse's accounts, and automatic dividend reinvestment inside the window counts as a purchase. The disallowed loss is not lost forever; it is added to the basis of the new shares. But it defeats the purpose, which was to use the loss in 2026.

The clean way around it is the calculator's "one move": sell, and the same day buy something similar but not identical. One broad U.S. stock fund for another tracking a different index, one bank for another bank, one homebuilder for another. You stay invested through any rebound and the loss stands. If you want the exact same stock back, you wait 31 days, and you accept the risk that it moves without you.

The gains you did not choose

There is a reason harvesting season is December. Mutual funds pay out their realized gains to shareholders late in the year, typically 1% to 5% of the fund's value after a strong year, and 2026 has been a strong year. Those distributions are taxable to you as long-term gains even if you never sold a share, and they are exactly the kind of gain a harvested loss offsets. Your fund company publishes estimated distributions in November. If they are large, a loss harvested in December cancels them.

When not to bother

• Your long-term rate is 0%. Under $49,450 single or $98,900 joint of taxable income, there is no tax to save on long-term gains, and any short-term saving is repaid at a higher rate later.
• The loss is small. A $500 loss saves about $75 at 15%, which does not cover your time and two bid-ask spreads.
• The stock is in a retirement account. Losses in a 401(k) or IRA cannot be harvested, because gains there are not taxed year by year either.
• You would be selling something you want to hold and cannot replace. If no similar fund exists, a 31-day absence from a stock that just fell 49% is a real risk, in both directions.

What to do before December 31

1. Open your broker's realized-gains report and note two numbers: short-term gains and long-term gains for 2026. Add any estimated fund distributions from November.
2. List every holding in a taxable account with a loss of more than a few hundred dollars. The 49% and 34% names are the obvious candidates; a 10% loss on a large position matters more than a 40% loss on a small one.
3. Run each candidate through the tax-loss harvesting calculator with your bracket, the type of gain it would offset, and how long you would hold the replacement. Harvest the ones that net more than about 5% of the loss; skip the rest.
4. Sell and buy the replacement the same day, then turn off dividend reinvestment on anything you sold for 31 days.
5. Do it in early December, not on the 31st. Trades need to settle, brokers are busy, and a fat-finger on the last trading day of the year has no fix.

FAQ

Does harvesting actually save tax, or just delay it?

Mostly it delays it, and the delay is worth money three ways: a dollar of tax paid later costs less today, a loss used against short-term gains or wages saves tax at up to 37% while the deferred gain is taxed at 15% or 20%, and a replacement held until death is never taxed at all. Against long-term gains at the same rate, the benefit is only the timing, about 3% of the loss over five years.

Can I harvest a loss and buy the same stock back?

Not within 30 days on either side of the sale, in any account, without losing the deduction for 2026. Buy a similar but not identical investment the same day instead, or wait 31 days. Cryptocurrency is the exception: as of 2026 it is outside the wash-sale rule, so it can be sold and repurchased immediately.

What if I have no gains at all this year?

You still deduct $3,000 of the loss from ordinary income, which at 24% is $720 back, and carry the rest forward for future years. On a $10,000 loss with no gains, the calculator shows about $367 of net benefit this year plus a $7,000 carryforward that offsets future gains.

Do I owe the 3.8% net investment income tax on the gains I am offsetting?

If your modified adjusted gross income is above $200,000 single or $250,000 married filing jointly, yes, and a harvested loss reduces that tax too. For those households the long-term rate is effectively 18.8% or 23.8%, which is why the second row of the table nets 16%. The calculator does not add the 3.8% automatically; enter 18.8 or 23.8 as your long-term rate if it applies to you.

Where do the 2026 thresholds come from?

The 0% long-term capital-gains band tops out at $49,450 of taxable income for single filers and $98,900 for married filing jointly in 2026, the 15% band at $545,500 and $613,700, with 20% above that. The $3,000 ordinary-income limit and the 30-day wash-sale window are set in the tax code and have not changed.

Sources

• IRS Topic 409 — Capital gains and losses -- the $3,000 limit, carryforwards, and the long-term rates.
• IRS Publication 550 — Investment income and expenses -- the wash-sale rule and "substantially identical" securities.
• IRS Revenue Procedure 2025-32 -- the 2026 inflation-adjusted capital-gains thresholds cited above.
• Investor Sam company pages for the 52-week returns of Nike, Lennar and Home Depot, as of September 24, 2026.