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How Tax Loss Harvesting Works
1
Harvest Short-Term Losses
Systematically realize short-term losses, generating ordinary income deductions at the higher tax rate.
2
Reinvest in Correlated Assets
Redeploy capital into similar (non-wash-sale) positions to maintain market exposure.
3
Realize Long-Term Gains
Hold replacement positions past one year, converting gains to the preferential LT rate.
4
Compound Tax Alpha
The spread between ordinary deductions and LT gains generates persistent tax alpha.