Tax-Loss Harvesting and the Wash Sale Rule
Useful in taxable accounts, irrelevant in retirement accounts, and easy to get wrong by 30 days.
At a glance
Figures checked 1 Sep 2026
What to take away
- Only applies in taxable accounts.
- The wash sale window is 30 days before and after the sale.
- It defers tax rather than eliminating it, because your cost basis falls.
If a holding is worth less than you paid, selling realises a capital loss. That loss offsets capital gains, and up to $3,000 a year of ordinary income beyond that, with the rest carried forward indefinitely.
The wash sale rule
Buying the same or a substantially identical security within 30 days before or after the sale disallows the loss. The window is 61 days in total, and it includes purchases in your IRA and your spouse’s accounts — an automatic dividend reinvestment is enough to trigger it.
Two different S&P 500 funds tracking the same index are widely regarded as risky substitutes. Moving to a fund tracking a genuinely different index is the safer approach.
What it actually achieves
Your replacement holding has a lower basis, so the gain is larger when you eventually sell. The benefit is the time value of deferred tax, plus the possibility of realising the gain later at a lower rate.
Common questions
No. There is no capital gains treatment inside tax-advantaged accounts, so there is nothing to harvest.