What is Tax-Loss Harvesting - US?
Tax-loss harvesting is the strategy of intentionally selling investments at a loss to offset capital gains (and up to $3,000 of ordinary income per year), then reinvesting in a similar, but not 'substantially identical', security to maintain market exposure.
Formula
How to Interpret
A staple of US tax-aware investing, robo-advisors (Wealthfront, Betterment) automate it daily. Watch the wash-sale rule (61-day window: 30 days before + sale day + 30 days after, across all your accounts including IRAs and your spouse's). Studies estimate effective TLH adds ~0.5–1.5% in after-tax annual return ('tax alpha'). Less applicable in India because the LTCG framework and lack of carryforward equivalence change the math.
Typical Ranges
Most beneficial for investors in 24%+ federal bracket with taxable accounts and frequent rebalancing opportunities. Limited use inside tax-advantaged accounts (401(k), IRA).