The five steps
- Step 1: Inventory every position's gain and loss. List realized gains for the year plus unrealized losses in taxable accounts. The harvest target is the realized-gain total plus $3,000 — harvest to the target, not to the emotion.
- Step 2: Sell losers deliberately, winners rarely. Realize losses to cover the target; leave winners compounding unless rebalancing demands it. Short-term losses first — they shield gains taxed at ordinary rates.
- Step 3: Dodge the 61-day wash-sale window. No repurchase of the same or substantially identical security from 30 days before through 30 days after each sale — across every account you and your spouse hold, including IRAs and 401(k)s.
- Step 4: Reinvest the proceeds the same day. Swap into a similar-but-not-identical holding immediately so the market never catches you in cash. The harvest changes the tax bill, never the allocation.
- Step 5: Bank the carryforward and document it. Losses beyond gains-plus-$3,000 carry forward indefinitely — reconcile the broker's 1099-B against your own records, because brokers routinely misreport wash sales across accounts.
What can go wrong
Wash sales across accounts are the number-one killer: the taxable account harvests while the IRA's automatic reinvestment quietly repurchases — and that disallowed loss is gone permanently, with no basis adjustment to recover it. The second failure is harvesting winners by accident through mutual-fund year-end distributions you didn't foresee. The third is the broker 1099-B you trusted: brokers report only what they see, so cross-account and cross-spouse wash sales land on your Form 8949 adjustments or nowhere. Document every sale yourself.
Frequently Asked Questions
- The sale must execute in the tax year — December 31 for calendar-year taxpayers. Settlement timing no longer delays the trade date, but don't place the year's biggest sale in the final hour.
- After 30 days, freely. Inside the window, buy something similar but not substantially identical — a peer stock, a neighboring index fund. Same CUSIP inside 30 days kills the loss.
- Yes — a reinvested dividend inside the 61-day window is a purchase like any other. Disable reinvestment on harvested positions (and their twins in every account) before selling.
- Form 8949 and Schedule D, reconciled to the 1099-B — with your own wash-sale adjustments where the broker missed cross-account repurchases. Keep the trade confirmations; the IRS matches proceeds, not basis.