Fundamentals
Tax-Loss Harvesting: The Tax Result Comes After Netting and Wash-Sale Review
A paper loss does nothing in this model until a selected sale realizes it—and even then, selling costs, wash-sale disallowance, existing gains, the annual deduction limit, and carryforward determine its current-year value.
11 minute read · 2026 U.S. federal tax
See the mechanism
Calculate potential loss
- 1Calculate potential loss
- 2Subtract wash-sale disallowance
- 3Allocate gain offsets, deduction, carryforward
Convert a selected position into an allowed realized loss
Net sale proceeds equal estimated gross proceeds minus selling costs, floored at zero. Potential loss is adjusted basis minus those proceeds, also floored at zero because the position row must represent a loss.
An entered wash-sale disallowance reduces that potential loss. TaxArith flags submitted replacement facts but does not determine substantially identical property or calculate the disallowance.
Potential loss is not the same as allowed loss
Production values expose selling costs, entered wash-sale disallowance, capital gain offsets, carryforward, and current tax savings.
- 1$10,650.00
Potential realized loss
- 2$2,000.00
Wash-sale disallowed
- 3$8,650.00
Allowed harvested loss
- 4$8,650.00
Gain offset
- 5$1,654.50
Current federal tax savings
Character controls where the allowed loss goes
Allowed short- and long-term harvested losses join current activity and carryovers inside their own categories. Opposite-signed category results cross-net only after that step.
Loss used against gains can have immediate value. A remaining net loss can reduce ordinary taxable income only up to the modeled $3,000 limit, or $1,500 for Married Filing Separately, and available ordinary income.
A realized loss may be mostly a future-year asset
When existing gains are small and the annual ordinary-income deduction is already limited, a larger allowed harvested loss can flow mainly to carryforward. The market loss is real, but the current-year federal tax effect can remain modest.
What changes the estimate most
Prioritize the inputs that can move this model before refining smaller details.
Allowed harvested loss
High
Only the post-adjustment loss enters capital netting.
Existing gains and carryovers
High
Determine current use versus carryforward.
Wash-sale facts
Verify first
Can reduce or eliminate the modeled loss.
Unused loss can move to carryforward instead of current savings
The result allocates harvested loss among gain offsets, the current-year deduction, and additional carryforward. A large allowed loss can therefore produce modest current-year savings.
Exact future short- and long-term carryforward requires the official Schedule D worksheet. The calculator’s allocation is a planning model, not a filed-return carryover.
Tax savings compares two federal scenarios—not investment profit
The engine calculates current federal income tax and tax after the proposed harvest using ordinary and preferential stacks. Their difference is estimated current-year federal tax savings.
It does not subtract the investment’s economic loss, replacement cost, spread, market movement, future appreciation, future tax, or portfolio consequences.
The calculation boundary
The left side enters this model; the right side still requires another calculation or review.
Inside the boundary
- Selected loss positions and selling costs
- Entered wash-sale disallowance
- Capital netting, deduction, carryforward, tax comparison
Outside the boundary
- Automatic wash-sale determination
- Replacement basis and cross-account search
- Portfolio returns, future tax, NIIT, state tax
Before you use the estimate
- Support adjusted basis, proceeds, costs, and holding period.
- Review replacement purchases across relevant accounts and parties.
- Enter any disallowed wash-sale amount independently.
- Inspect allocation between gain offsets, deduction, and carryforward.
Where this estimate stops
- No automatic wash-sale determination, cross-account search, replacement-basis calculation, portfolio analysis, NIIT, AMT, or state tax.
- No Form 8949, Schedule D, or official carryover worksheet.
Sources and references
Only the primary federal sources used for the rules discussed in this guide are listed here.
- Topic No. 409, Capital Gains and Losses
Internal Revenue Service · General capital gain and loss character, netting, the annual capital-loss deduction, and carryover treatment.
- Publication 550, Investment Income and Expenses
Internal Revenue Service · Investment income, basis, holding-period, capital netting, and wash-sale concepts discussed in the guide.
- Instructions for Schedule D
Internal Revenue Service · Capital-loss netting, deduction, and carryover worksheet context.
- Instructions for Form 8949
Internal Revenue Service · Transaction reporting and adjustment context for realized investment sales.
TaxArith provides illustrative 2026 U.S. federal tax estimates for general information. It is not tax, legal, financial, or investment advice and does not prepare or file a return. Results depend on the accuracy and completeness of the submitted facts.