![]() Once the sale is final, you can claim $2,000 in long-term tax losses and are essentially in the same position as you started. You can sell the index fund and quickly buy another broad market index fund - say, the Vanguard Total Stock Market Index Fund ETF, which follows the same index and charges the same fees. ![]() That’s where your tax-loss harvesting comes in. You think the market is still going up in the long run and want to keep the investment. Let’s say you buy $10,000 of the iShares Core S&P 500 exchange-traded fund (ETF) and look back at your portfolio a year and a half later and see it is now worth $8,000. Employing tax-loss harvesting techniques may help you lower your tax bill when you sell with a capital gain. Even highly successful investors like Warren Buffett see ups and downs in their portfolios over time. Tax-loss harvesting doesn’t mean you’ve made bad investments or will lose in the long term. When you have a realized gain in the future in a taxable account, you'll be glad you used the tax-loss harvesting strategy. However, depending on your income and tax situation, you could wind up significantly better off when taxes are due. The only cost, if any, is transaction fees. After tax-loss harvesting transitions, your portfolio should have a nearly identical allocation. Tax-loss harvesting is an investment strategy of selling investments at a loss and immediately re-buying a similar investment to lock in an investment loss for tax purposes.
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