Tax-Loss Harvesting Annual Savings Estimate: Calculate Yours
A tax-loss harvesting annual savings estimate is an estimate of how much tax a taxable brokerage investor could save in one year by realizing portfolio losses, applying those losses against taxable capital gains, and deducting or carrying forward excess losses under IRS rules. The estimate depends on actual lot-level losses, current-year gains, federal and state tax rates, wash sale limits, and how often the portfolio is checked. TaxHarvest makes the estimate from the portfolio the investor already owns, not from a model portfolio at a robo-advisor.
That last part matters.
A generic estimate can tell you that tax-loss harvesting is useful. A portfolio estimate tells you whether there is a $600 opportunity, a $6,000 opportunity, or a $60,000 opportunity hiding in your actual lots.
Most investors start with the wrong question. They ask whether tax-loss harvesting "works." It does. The better question is how much of the available value they are likely to capture this year.
What Is a Tax-Loss Harvesting Annual Savings Estimate?
A tax-loss harvesting annual savings estimate answers a simple question: if you harvested the useful losses in your taxable portfolio this year, how much less tax would you expect to pay?
The answer is not based only on portfolio size. Two investors can each have $750,000 in taxable accounts and have very different savings estimates. One may own three broad ETFs bought years ago. Another may own 70 lots across individual stocks, ETFs, dividend reinvestments, stock compensation, and a spouse's account.
The second portfolio has more places for losses to appear.
The estimate has five inputs:
| Input | What it measures | Why it matters |
|---|---|---|
| Harvestable losses | Lots currently below cost basis | Losses are the raw tax asset |
| Current-year gains | Gains already realized or likely to be realized | Losses first offset gains dollar for dollar |
| Tax rate | Federal, NIIT, and state tax exposure | The same loss is worth more at a higher rate |
| Wash sale risk | Recent and planned purchases across accounts | A blocked loss is not usable savings |
| Scan frequency | How often the portfolio is checked | Losses can disappear before year-end |
This is why the estimate is a software problem. It is easy to describe the formula. It is harder to run the formula across hundreds of lots, several accounts, and a moving market.
How Do You Calculate a Tax-Loss Harvesting Annual Savings Estimate?
The practical formula is:
Annual savings estimate = usable harvested losses x the tax rate on the income being offset.
There are details underneath that formula.
Capital losses first offset capital gains. If losses exceed gains, federal rules generally allow up to $3,000 of net capital loss to reduce ordinary income in the same year. Any unused loss carries forward to later tax years. The wash sale rule can disallow a loss if the investor buys substantially identical stock or securities within 30 days before or after the loss sale.
For many high-income investors, the relevant federal rate on long-term capital gains is 23.8%, made of the 20% long-term capital gains rate plus the 3.8% net investment income tax. State taxes can add more, but this article keeps the worked examples federal only.
Here is the simplest version.
| Item | Calculation | Result |
|---|---|---|
| Harvested losses | $20,000 | $20,000 |
| Gains available to offset | $20,000 | $20,000 |
| Federal tax rate | 20% + 3.8% | 23.8% |
| Annual savings estimate | $20,000 x 23.8% | $4,760 |
The loss did not change the investment return. It changed the tax result attached to that return.
A Worked Estimate for a $750,000 Portfolio
Suppose an investor has $750,000 in taxable brokerage accounts. TaxHarvest scans the lots and finds the following:
| Category | Amount | Notes |
|---|---|---|
| Visible position-level losses | $18,000 | Positions that look down overall |
| Hidden lot-level losses | $24,000 | Loss lots inside positions that are up overall |
| Total harvestable losses | $42,000 | Before wash sale review |
| Losses blocked by wash sale risk | -$5,000 | Recent or scheduled purchases |
| Usable losses | $37,000 | Losses available for planning |
The investor has already realized $30,000 of long-term gains this year. They are subject to the 23.8% top federal rate on long-term gains.
The first $30,000 of usable losses offsets those gains.
| Step | Calculation | Federal tax effect |
|---|---|---|
| Losses used against gains | $30,000 | $30,000 x 23.8% = $7,140 |
| Remaining net loss | $37,000 - $30,000 | $7,000 |
| Ordinary income offset | $3,000 limit | $3,000 x 35% = $1,050 |
| Carryforward | $7,000 - $3,000 | $4,000 for future years |
| Current-year federal savings | $7,140 + $1,050 | $8,190 |
The tax-loss harvesting annual savings estimate is $8,190 of current-year federal savings, plus $4,000 of carryforward losses that may be useful in a later year.
That estimate would be wrong if it only looked at the position-level dashboard. The dashboard showed $18,000 of losses. The lot-level scan found $42,000 before wash sale review. The hidden lots changed the answer.
This is the point of unrealized losses hiding in your winners. A position can look profitable while one purchase lot inside it is sitting at a loss.
Why Year-End Estimates Are Usually Too Low
Many investors estimate tax-loss harvesting savings in December.
That is better than doing nothing, but it misses the main feature of the strategy: losses have a shelf life.
A stock bought in February may be down 11% in April, flat by July, and up 19% by December. A year-end review sees no loss. A continuous scan sees the April loss and can decide whether it is worth harvesting.
This is why an annual savings estimate should not only ask what losses exist today. It should ask what the portfolio is likely to expose throughout the year, and whether someone is watching when the loss appears.
Manual harvesting usually means the investor checks after a bad week, near year-end, or before calling a CPA. Software checks because checking is the product.
TaxHarvest does not need the investor to move into a managed portfolio to do that. It reads the portfolio the investor already owns and looks for tax value inside it. That distinction is covered in tax loss harvesting software for your existing portfolio.
How Software Changes the Estimate
Software changes the estimate in three concrete ways.
First, it sees lots instead of positions. A brokerage account may show that an ETF position is up $6,000 overall. That does not mean every lot is up. If the newest lot is down $2,400, the investor may have a harvestable loss hidden inside a winning position.
Second, it checks wash sale risk before counting a loss as usable. A loss is not useful if a spouse's account, IRA, dividend reinvestment, or recent trade blocks the deduction. This is why tax loss harvesting across multiple brokerage accounts is not just a convenience feature. It changes the accuracy of the estimate.
Third, it can suggest when to spend losses, not only when to bank them. If a portfolio has a $12,000 loss and a $12,000 low-basis gain, realizing both can raise cost basis without creating net capital gain. That is the mechanics behind matched pairs tax loss harvesting and raising cost basis to $0 tax.
The first version saves tax this year. The second version can lower future tax by increasing the portfolio's basis.
Suppose an investor uses $15,000 of harvested losses each year to realize $15,000 of gains at no net federal capital gain. After 10 years, the investor has raised basis by $150,000. At a future 23.8% federal rate, that basis increase represents $35,700 of federal tax exposure removed from the future.
That is not a one-time deduction. It is a slow reduction in the tax embedded inside the portfolio.
Why Existing Accounts Change the Estimate
An estimate based on a model portfolio is useful only if the investor is willing to own that model portfolio.
That is not how many taxable investors live. They already have positions at Fidelity, Schwab, E*TRADE, Robinhood, Interactive Brokers, or several of them at once. They may own employer stock in one account, ETFs in another, and a spouse's taxable account somewhere else. Their real tax problem sits inside that existing account history.
Moving into a managed portfolio can create a clean future account, but it does not automatically solve the tax facts that already exist. The investor's current lots still matter. Low-basis winners still carry embedded gains. Recent purchases still create wash sale risk. Hidden loss lots may be sitting inside positions that look profitable overall.
That is why an annual savings estimate should start with the investor's actual portfolio. The question is not what a generic portfolio could have harvested. The question is what this investor can harvest from the lots they already own.
TaxHarvest is built around that question. It does not need to replace the portfolio to estimate the tax value in the portfolio. It needs to see the lots, check the rules, and identify the trades that improve the after-tax result.
What Is a Good Estimate?
A good estimate is specific enough to be useful and humble enough to be honest.
It should not say, "Your portfolio will save exactly $12,438 this year." Markets move. Income changes. Gains appear. Wash sale windows open and close.
A useful estimate should show:
- current harvestable losses
- losses blocked by wash sale risk
- gains available to offset
- current-year federal savings
- ordinary income offset, if any
- carryforward value
- basis-raising opportunities
The difference between a rough estimate and a real estimate is the data source. A rough estimate uses portfolio size. A real estimate uses tax lots.
For a quick portfolio-size benchmark, see how much you can save with tax loss harvesting. For the actual mechanics that make the estimate reliable, see tax loss harvesting software, optimal tax lot selection, and tax loss harvesting rules for 2026.
The best estimate is the one that updates when your portfolio changes. That is what the tax layer needs to do. It should not replace the portfolio. It should make the portfolio you already own more tax-aware.
See your own number. Try the tax loss harvesting calculator or connect your brokerage accounts to estimate savings from your actual lots.