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In year 2020 I have:

- short-term capital losses =  2000 USD
- long-term capital losses  =  3000 USD
- short-term capital gains  =  2500 USD
- long-term capital gains   =  5000 USD

Can I harvest the 2k USD of short-term losses to be deducted against 2kUSD out of 2.5kUSD of my short-term capital gains? Or must I first tax-harvest the 3k USD of long-term capital losses be deducted against 3kUSD out of 5kUSD of my long-term capital gains (which would mean I can't harvest any short-term loss, since 3kUSD is the maximum one can tax-harvest in 2020)? I am in the United States.


Regarding tax-loss harvesting in the United States, https://www.moneyunder30.com/profit-from-tax-loss-harvesting (mirror) mentions some priorities between short-term capital gains and long-term capital gains when tax-loss harvesting short-term capital losses or tax-loss harvesting long-term capital losses, but doesn't indicate what the priority for between harvesting long-term losses and harvesting short-term losses is:

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.

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Yes.

If you are "harvesting" that means you are mainly circumventing wash sale rules by selling the underperforming assets to lock in the capital loss and immediately buying a different asset that gives exposure to the same exact alpha. There are often ETFs for this specific purpose if you need help finding them, or you can make synthetic long positions with derivatives like options.

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  • Thanks, just to confirm: If one has short-term capital losses and >3kUSD of long-term capital losses and gains, can one harvest short-term losses to be deducted against short-term capital gains (i.e. we don't have to first harvest long-term capital losses)? – Franck Dernoncourt Sep 26 '20 at 4:13
  • @FranckDernoncourt no. short term losses against short term gains. long term losses against long term gains. note: if you have losses from prior years they can be also be used against the current year's gains, in their respective categories, until the losses are used up. – CQM Sep 26 '20 at 4:34

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