Tax-Loss Harvesting
Selling investments at a loss to offset capital gains (and a limited amount of ordinary income), lowering your tax bill.
Tax-loss harvesting is the practice of selling an investment that's down to realize a capital loss, then using that loss to offset capital gains elsewhere. If losses exceed gains, you can deduct up to a limited amount against ordinary income each year and carry the rest forward indefinitely.
The catch is the wash-sale rule: if you buy the same or a substantially identical security within 30 days before or after the sale, the loss is disallowed. Investors typically avoid this by moving into a similar-but-not-identical fund, keeping market exposure while still booking the loss.
Harvested losses don't make a bad investment good — they just recover some tax value from a decline you've already experienced. The benefit is real but bounded, and it's most useful in taxable accounts, since tax-sheltered accounts have no gains to offset.
This definition is general information to help you understand a term, not financial, tax, or legal advice. Figures that change year to year (limits, thresholds, rates) should be confirmed against current official sources. For guidance on your situation, a licensed fee-only fiduciary is the right next step.