Tax-loss harvesting in action
We’ve covered how tax-loss harvesting works in theory, but what does it look like in practice?
Well, suppose you invest $5,000 in a mutual fund. One year later, the value of your investment drops to $4,000 — ouch. That’s a $1,000 loss. If your investments are taxed at a long-term capital gains tax rate of 15%, selling this mutual fund at a loss generates $150 in tax savings.