10 Tax-Loss Harvesting Strategies to Cut Your 2024 Capital Gains Bill—Before December 31

Let’s be direct: you probably have positions in your brokerage account that are down 10%, 20%, or more from where you bought them. That’s not just a loss—it’s a tax asset. Tax-loss harvesting lets you sell those losers, realize the loss for tax purposes, and use it to offset capital gains from winners or even up to $3,000 of ordinary income. But the real money comes from doing it systematically, not just in a panic in late December. Below are ten specific strategies to cut your 2024 tax bill using losses you already own.

1. Before You Sell: Map Your Realized and Unrealized Gains

The most common tax-loss harvesting mistake is selling a loser without knowing what gains you actually need to offset. Open your brokerage account and look at two numbers: your year-to-date realized short-term and long-term gains (from trades you’ve already made) and your current unrealized gains in positions you still hold. If you have $10,000 in realized short-term gains and $12,000 in unrealized losses on stocks like Intel or Peloton, you can sell enough losers to net out at zero—and carry the extra $2,000 loss forward to 2025 or deduct $3,000 against ordinary income.

Harvest only to the extent of your realized gains first

Don’t sell $50,000 in losses if you only have $5,000 in realized gains. The $45,000 excess loss is still useful (it carries forward indefinitely), but you lose the chance to let those positions recover if you didn’t need to sell. Be surgical: harvest enough to offset gains you’ve already locked in, plus any gains you plan to take before year-end.

2. Pair Tax-Loss Harvesting with Tax-Gain Harvesting in the Same Week

This sounds counterintuitive, but it works brilliantly for investors in the 0% long-term capital gains bracket (single filers under $47,025 taxable income in 2024, married filing jointly under $94,050). If your total income falls within that 0% bracket, you can sell a winning position—pay zero tax on the gain—and immediately buy it back. This resets your cost basis higher, reducing future taxable gains. Then use that same week to sell a loser to offset any other gains. For example, sell $5,000 of Apple stock you bought at $100 (now $150) for a $50 gain—zero tax. Then sell $5,000 of a losing ETF to offset that same gain. Net result: zero tax this year, and your Apple cost basis steps up from $100 to $150, saving you tax dollars in future years.

3. Harvest Losses on Specific Lot IDs, Not Average Cost

Most brokerages default to average cost for mutual funds and FIFO (first in, first out) for stocks. That’s terrible for tax-loss harvesting. Instead, enable specific identification of tax lots. In Fidelity, it’s under “Cost Basis Information Tracking Method.” In Vanguard, it’s “Specific ID.” Once enabled, you can pick exactly which shares to sell—the ones with the highest cost basis (i.e., the biggest loss per share). For example, you bought 100 shares of Microsoft at three different times: $250, $300, and $350. The stock is now $280. If you sell the $350 lot, you realize a $70 per share loss. If you sell the $250 lot, you realize a $30 per share gain. The difference in tax impact is enormous.

4. The Wash-Sale Rule: How to Harvest Without Losing the Tax Benefit

The wash-sale rule (IRS Section 1091) disallows a loss if you buy a “substantially identical” security within 30 days before or after the sale. Many investors get burned by this—selling an S&P 500 ETF at a loss, then buying a different S&P 500 ETF the next day. The IRS views them as substantially identical. To avoid this, wait 31 days before repurchasing the same security, or buy a different ETF that tracks a different index. For example, sell the Vanguard S&P 500 ETF (VOO) at a loss and immediately buy the iShares Core S&P 500 ETF (IVV)—that’s not substantially identical per IRS rulings, though some tax advisors still say it’s risky. A safer alternative: sell VOO and buy the Invesco S&P 500 Equal Weight ETF (RSP) or a large-cap growth ETF like VUG. The key is that you must not own the original security anywhere, including in a retirement account you control—buying it in an IRA within 30 days also triggers a wash sale.

Crypto and wash sales: a critical 2024 update

Historically, the IRS did not apply wash-sale rules to crypto. That changed in 2024. The proposed regulations (IRS Notice 2024-41) now treat digital assets the same as securities for wash-sale purposes. If you sell Bitcoin at a loss and buy Bitcoin back within 30 days, the loss is disallowed. This applies to transactions after 2023. So if you’re tax-loss harvesting crypto in 2024, map your purchase dates carefully and stagger your re-entry.

5. Harvest Losses in Your Taxable Account, Not Your IRA or 401(k)

Losses in retirement accounts do not create any tax benefit. If you sell a losing position inside your IRA, you get a lower account balance and no deduction. The only way to capture a tax loss is in a taxable brokerage account. If you hold the same ETF in both an IRA and a taxable account, be careful: selling at a loss in your taxable account while buying the same ETF in your IRA within 30 days could trigger a wash sale on the taxable loss. Plan your trades so the 31-day window passes on any same-security purchases in any account you control.

6. Prioritize Short-Term Losses over Long-Term Losses (Usually)

Short-term capital gains (on assets held under one year) are taxed at ordinary income rates—up to 37% in 2024. Long-term gains are taxed at 0%, 15%, or 20%. Short-term losses first offset short-term gains, then long-term gains. Long-term losses first offset long-term gains, then short-term gains. The optimal strategy: if you have both short-term and long-term losses, use short-term losses to offset short-term gains first because they save you the higher tax rate. If you don’t have enough short-term losses, start harvesting from positions with the highest short-term loss potential (i.e., stocks you bought less than a year ago). This maximizes the tax value per dollar of loss.

7. Use Losses to Offset $3,000 of Ordinary Income Every Year—Even if You Have No Gains

If your realized losses exceed your realized gains in a tax year, the excess can offset up to $3,000 of ordinary income ($1,500 if you’re married filing separately). The tax savings can be substantial: if you’re in the 24% bracket, a $3,000 deduction saves you $720 in federal taxes, plus state tax (if applicable). This is effectively free money if you have losses you were going to realize anyway. For example, if you want to exit a position in a beaten-down company like Beyond Meat or DraftKings that you no longer believe in, do it in a year when you can use the loss against ordinary income. The deduction resets every year, so you can do this annually if you have carryover losses.

8. Avoid the “Grab Bag” Mistake: Don’t Harvest Every Loser at Once

There’s a temptation to log in on December 28 and sell every position that’s in the red. Resist it. Harvest only the losers you were already planning to sell for investment reasons. If you still believe in the company, selling just for the tax benefit means you either rebuy after 31 days (and hope the price doesn’t run up) or permanently exit a good holding. A better approach: compile a list of positions you want to reduce or eliminate regardless of taxes—and then add a few tactical sales of positions you want to keep but temporarily sell for the tax loss, with a plan to buy back after 31 days.

Rebalancing as a harvesting trigger

If your portfolio is overweight in a particular sector or stock due to gains, and you need to sell to rebalance, check whether any of those positions now show losses. Rebalancing into a loss is an ideal harvesting opportunity: you were going to sell anyway, and now you get a tax benefit on top of it.

9. Don’t Forget State Taxes—Especially if You Live in California or New York

Federal capital gains rates get all the attention, but state income tax rates on capital gains range from 0% (states like Texas, Florida, Nevada) to 13.3% in California. If you live in a high-tax state, a $10,000 short-term capital gain can cost you $3,700 in federal tax plus $1,330 in California tax—over $5,000 total. Tax-loss harvesting reduces that state tax bill too, since most states conform to federal capital gain treatment. The exception: a few states (like Pennsylvania) do not allow deduction of capital losses against ordinary income, only against capital gains. Know your state’s rules before you plan.

10. Document Everything: A Simple Spreadsheet Saves You from Audit Headaches

The IRS doesn’t automatically flag tax-loss harvesting, but if you do it frequently or in large amounts, you want a clear paper trail. Set up a simple three-column log: date of sale, security name, loss amount realized, and the date you repurchased (if applicable). Include a note about why you believe the replacement security is not substantially identical. If you use specific identification, attach the lot confirmation from your broker. This takes 15 minutes per year and can save you hours of stress if the IRS ever sends a letter. Most brokerages now provide a “year-end tax summary” that lists all realized gains and losses—export that PDF and keep it with your tax return.

The next step is simple: open your brokerage account today, sort by “unrealized gain/loss,” and identify the top three losers that you either want to exit permanently or can afford to be out of for 31 days. Multiply the loss by your marginal tax rate (federal + state) to see your actual savings. Then execute the trades before December 31. If you have gains already locked in, you can wait until late December. If you have carryover losses from prior years, check your tax return to see how much is left—then plan to use it against 2024 gains or ordinary income. This is a straightforward, repeatable process that gets more powerful the more often you do it.