Selling investments at a loss to offset capital gains and potentially reduce your taxable income.
In Depth
Tax-loss harvesting is a strategy where you sell investments that have lost value to realize a capital loss. This loss can then be used to offset any capital gains you've made from other investments, reducing the amount of tax you owe on those gains. If your capital losses exceed your capital gains, you can use up to $3,000 of the remaining loss to reduce your ordinary income each year. Any unused losses can be carried forward to offset future gains or income.
Example
After a market downturn, Sarah used tax-loss harvesting to sell some underperforming stocks, offsetting the gains she made from other investments and lowering her overall tax bill for the year.