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Assume that one has the choice between taking long-term capital losses and short-term capital losses, and assume that, since the year hasn't ended yet, one doesn't know all the short-term and long-term capital gains.

Is there any upside in harvesting tax losses on long-term losses instead of short-term losses?

From https://www.moneyunder30.com/profit-from-tax-loss-harvesting:

Long-term losses are first applied against long-term gains, and then against short-term gains. Meanwhile, short-term losses are applied first to short-term gains. This sequence takes place because long-term capital gains are taxed at a lower tax rate than short-term capital gains.

Since taxes on short-term gains are higher than taxes on long-term gains, I only see upsides in tax-loss harvesting short-term losses instead of long-term losses. Did I miss something?

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  • I think the core of your question is: "With only long-term capital gains, is there any benefit to taking a long-term loss compared to a short-term loss?"
    – chepner
    Commented Sep 24, 2020 at 16:36
  • @chepner Thanks, rather: "Regardless of whether capital gains are short-term or long-term, if any, (and assuming I have some income via W2 that I could also offset if no capital gain), is there any benefit to taking a long-term loss compared to a short-term loss?" Commented Sep 24, 2020 at 16:40
  • Short-term losses are more valuable, tax-wise, than long-term losses. But if you have both, I see no reason not to harvest both, and carry over to future years if you have excess.
    – Craig W
    Commented Sep 24, 2020 at 22:30

1 Answer 1

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If you have long-term gains, you will have to pay capital gains taxes on them. If you harvest long-term losses, you will reduce the amount of taxes you have to pay.

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  • Thanks, "If you harvest long-term losses, you will reduce the amount of taxes you have to pay." -> Isn't that also true that if I harvest short-term losses? Commented Sep 24, 2020 at 16:35
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    @FranckDernoncourt Yes. Generally, you would prefer to harvest short-term losses over long-term losses if you have a choice. Commented Sep 24, 2020 at 16:45
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    Thanks, is there any case where harvest short-term losses is less favorable than harvesting long-term losses? (assuming that one has the choice between taking long-term capital losses and short-term capital losses) Commented Sep 24, 2020 at 16:49
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    @FranckDernoncourt Not that I can think of. Obviously, one might still decide to harvest a long-term loss over a short-term loss if one only needed to offset long-term gains and had a preference of which asset to hold going forward. Commented Sep 24, 2020 at 17:23

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