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5 min readWhen Your Portfolio Has Losers, the Tax Code Offers a Silver Lining
Even with the S&P 500 near an all-time high, roughly 200 stocks in the index are in the red for 2026, and about 40 of the stocks in the NASDAQ 100 are underwater so far this year. Three of the 11 S&P sectors — consumer discretionary, communication services, and utilities — have lost money over the trailing 12 months. That means most investors have some duds sitting in their portfolios. But if those losers are in a non-retirement account — not an IRA, 401(k), or HSA — selling them can reduce your taxable income. Robert Brokamp of Motley Fool walks through ten practical tips for turning losses into tax benefits, along with the rules, traps, and trade-offs worth understanding.
Matching Losses to the Right Gains
When you fill out Schedule D on your tax return, you separate your sales into short-term (held a year or less) and long-term (held longer than a year). You first offset short-term gains with short-term losses, and long-term gains with long-term losses. Whatever is left over after that gets matched against each other. Any remaining losses can reduce your taxable income by up to $3,000 per year ($1,500 if married filing separately), and excess losses can be carried forward to future years indefinitely.
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What you'll learn
- 1 (00:17) **Why Harvest Losses Now** - The market is near all-time highs, but many individual stocks and sectors are in the red, making this a relevant time for tax-loss harvesting.
- 2 (01:16) **Tip 1: Harvest Losses Beyond Stocks** - Bonds, ETFs, mutual funds, and options can also be sold for losses, expanding the opportunity set.
- 3 (01:54) **Tip 2: Match Short- and Long-Term Gains & Losses** - The IRS requires you to categorize and offset gains and losses by holding period before using excess losses against income.
- 4 (03:24) **Tip 3: The 30-Day Wash Sale Rule** - You cannot buy back the same or a substantially identical investment within 30 days of selling it at a loss, or the loss is disallowed.
- 5 (06:11) **Tip 4: Don't Try to Cheat the Wash Sale Rule** - The IRS has anticipated common workarounds, so avoid these specific actions.
- 6 (07:38) **Tip 5: Check for Multiple Cost Bases** - If you've made multiple purchases or reinvested dividends, you may have a mix of gains and losses within a single holding.
- 7 (08:08) **Tip 6: Specify Which Shares You're Selling** - Don't just use the default FIFO method; choose specific shares to maximize your tax benefit.
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Guests on this episode
Show Notes
Somewhere in your portfolio, you probably have a loser -- an investment that is now worth less than what you paid for it. However, all is not lost. If that investment is in a non-retirement account (i.e., not in an IRA, 401(k), or HSA), you can sell it, take the loss, and use it to offset your capital gains and reduce your taxable income. But you have to know the rules.
Robert Brokamp discusses what to keep in mind:
-The range of investments to consider selling
-How not to run afoul of the wash-sale rules
-The true value of the $3,000 ordinary income deduction
-The default rules for how cost basis and holding period are assigned to different types of investments
-The potential downsides of tax-loss harvesting
-When it makes sense to harvest gains or donate appreciated shares to charities
Host: Robert Brokamp, CFP®, EA
Engineer: Bart Shannon
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