Tax loss harvesting is a method to lower taxes by selling investments that aren’t doing well to balance out gains. It helps adjust portfolios and lessen the total tax bill by using losses from some investments to offset gains from others.
Tax-loss harvesting means selling investments that aren’t doing well to balance gains and lower the overall tax burden.
Tax-loss harvesting is a way to lower taxes by selling investments that have lost value. When you sell an investment at a loss, you can use that loss to reduce taxes on gains from other investments. The goal is to balance losses from underperforming investments with gains from profitable ones, which helps reduce overall taxes.k
Tax-loss harvesting helps you keep your investments balanced and also reduces taxes. It has two main benefits:
Tax-loss harvesting helps investors lower their taxes and adjust their investment mix.
The money earned from selling poorly performing assets can be invested in better opportunities while keeping a varied portfolio
Actions you can take
You can use short-term capital losses to offset short-term capital gains or long-term capital gains. However, long-term capital losses can only be used to offset long-term capital gains.
If you experience a ₹1,000 short-term capital loss and a ₹1,500 short-term capital gain, you can use the losses to offset the gains. This means you’d only be taxed on the remaining net gain of ₹500.
You can use losses from investments held for a while to balance out gains from those same kinds of investments.
Let’s say you lose ₹2,000 on a long-term investment, but you make ₹3,000 from another long-term investment. You can subtract the loss from the gain, leaving you with a taxable gain of ₹1,000.
If you lose or gain money in the short term and long term, you can match short-term losses with short-term gains and long-term losses with long-term gains.
If you have more losses or gains in one category after matching them, you can use the extra losses from one type to balance out the extra gains from the other type.
Normally, tax loss harvesting means looking at your investments near the end of the year. You might sell some assets strategically to lower your taxes before the year ends. If you’ve earned more money than usual in a year, tax loss harvesting can help lower your taxes by balancing out gains and losses.
If you haven’t used up losses from past years, you can use tax loss harvesting to balance out gains and make full use of those leftover losses.
When the market is down and investments are losing value, tax loss harvesting lets you use those losses to lower your taxes.