How Much Can Tax-Loss Harvesting Save?
Tax-loss-harvesting savings cannot be estimated from portfolio size alone. Two $1 million portfolios can have completely different lots, gains, contributions, volatility, and tax rates.
The useful calculation starts with a realized loss that can actually be used.
Basic Current-Tax Estimate
When a harvested loss offsets a taxable capital gain, a simplified current federal estimate is:
usable loss × tax rate on the gain being offset
Examples before state tax and future basis effects:
- A $20,000 loss offsets long-term gain taxed at 15%: $3,000 of current federal tax deferred.
- A $20,000 loss offsets long-term gain taxed at 20% plus NIIT: up to $4,760 under simplified assumptions.
- A $20,000 short-term loss offsets short-term gain taxed at 32%: $6,400 before any applicable NIIT.
The Schedule D netting rules determine what the loss actually offsets; an investor cannot freely assign it to the highest-rate gain.
What If There Are No Gains?
If total capital losses exceed total capital gains, an individual may generally deduct up to $3,000 of net capital loss against other income and carry the remainder forward.
At a 24% marginal rate, a $3,000 deduction could reduce current federal tax by $720. The unused loss may be valuable later, but that value depends on when and how it is used.
Why Portfolio-Size Tables Fail
A larger account may contain more lots, but it does not guarantee more losses. A new portfolio bought after a decline may have no loss lots. An older portfolio may contain mostly large gains. Regular contributions can create new high-basis lots, while earlier harvesting resets basis and changes future opportunities.
Do not assume that a fixed percentage of assets will be harvested every year.
Include the Costs and Future Tax
Subtract or model:
- Bid-ask spreads and fees.
- Replacement tracking difference.
- Time out of the intended investment.
- State tax treatment.
- The lower basis and future gain in the replacement.
- Professional or software cost.
Tax-loss harvesting often produces deferral, not permanent savings. Deferral can still be valuable because money remains invested longer, but the value depends on horizon and exit assumptions.
A Better Range
Use three scenarios:
- No current gain: only the permitted net-loss deduction is used now; the rest carries forward.
- Known gain: the loss offsets a documented short- or long-term gain at the applicable rate.
- Permanent-savings event: future gain is realized at a lower rate, donated, or potentially eliminated through a basis adjustment under then-current law.
Report each scenario separately rather than collapsing them into one annual percentage.
Try the tax-loss-harvesting calculator and read is tax-loss harvesting worth it? for a decision framework.
Bottom Line
The savings estimate is the usable loss multiplied by the tax rate it actually offsets, reduced for costs and future tax. Portfolio size is context—not a promise of how many losses will appear.
Official Source
