Tax loss harvesting is a strategic investment technique used to minimize taxes on investment gains by

deliberately selling securities at a loss. This process involves selling investments that have
experienced a decline in value to offset capital gains or other taxable income, thereby reducing the
investor's overall tax liability. Here are key points to understand about tax loss harvesting:

1. **Capital Losses and Gains**: In the context of taxation, capital gains are profits realized from the
sale of investments, while capital losses occur when investments are sold for less than their purchase
price. By strategically selling investments with capital losses, investors can offset capital gains and
potentially reduce their tax bill.

2. **Offsetting Gains**: Tax loss harvesting allows investors to offset capital gains realized from the
sale of profitable investments. By matching capital losses with capital gains, investors can reduce or
eliminate the taxes owed on those gains.

3. **Carrying Forward Losses**: If capital losses exceed capital gains in a given tax year, investors can
carry forward the unused portion of those losses to offset future gains in subsequent tax years. This
allows investors to maximize the tax benefits of tax loss harvesting over time.

4. **Wash Sale Rule**: The IRS prohibits investors from immediately repurchasing the same or
substantially identical securities within 30 days before or after selling them at a loss. Violating this
rule results in disallowance of the tax deduction for the loss. To comply with the wash sale rule,
investors may choose to wait for the 30-day period to expire before repurchasing the securities or
invest in similar but not identical securities during the waiting period.

5. **Asset Reallocation**: Tax loss harvesting can also be used as a strategy to rebalance a portfolio
or adjust asset allocations without incurring significant tax consequences. By selling assets with
losses and reinvesting in comparable securities, investors can maintain their desired investment mix
while potentially reducing taxes.

6. **Long-term vs. Short-term Losses**: Capital losses can be categorized as either long-term or
short-term based on the holding period of the investment. Long-term capital losses, from
investments held for more than one year, can offset long-term capital gains first, followed by short-
term gains. Similarly, short-term losses offset short-term gains before being applied to long-term
gains.
7. **Tax Efficiency**: Tax loss harvesting can enhance the tax efficiency of an investment portfolio,
especially for high-net-worth individuals or those in higher tax brackets. By actively managing capital
gains and losses, investors can minimize their tax burden and potentially increase after-tax returns.

8. **Consultation with Tax Professionals**: Investors should consult with tax professionals or
financial advisors to implement tax loss harvesting strategies effectively. Understanding the tax
implications, eligibility criteria, and timing considerations is crucial for maximizing the benefits of this
strategy while complying with tax regulations.

In summary, tax loss harvesting is a valuable tool for investors seeking to minimize taxes on
investment gains. By strategically realizing capital losses, investors can offset capital gains, reduce tax
liabilities, and enhance the overall tax efficiency of their investment portfolios. However, careful
planning, adherence to tax regulations, and professional guidance are essential for successful
implementation of tax loss harvesting strategies.