Tax-loss harvesting realizes losses to offset capital gains and lower your tax bill.
What it is
Tax-loss harvesting is the practice of selling a security that has dropped below your cost to crystallize (realize) a capital loss. That realized loss is then used to offset realized capital gains on your tax return, reducing the tax you owe. To stay in the market you typically replace the sold position with a similar but not identical security, while respecting the rules that disallow a loss when you rebuy the same security within a set window. The sale resets your cost basis on the position lower.
Why it matters
Done well, it converts paper losses into real tax savings and frees cash to redeploy without changing your overall exposure. The pitfall most people miss: a loss is denied if you (or, in Canada, an affiliated person such as your spouse or your own RRSP/TFSA) buy back the same or "substantially identical/identical" security inside the 30-day-before-and-after window. Buying it back in your IRA (US) can erase the loss permanently rather than just deferring it, and harvesting only helps if you actually have gains or income the loss can offset.
How it's calculated
There is no single formula; the benefit is the realized loss multiplied by the tax rate it offsets. First net realized losses against realized capital gains of the same character, then apply any allowable excess against other income up to the jurisdiction's limit, and carry the rest forward. The denied portion of a wash/superficial loss is not deleted but added to the cost basis (ACB) of the replacement shares.
How Quintarthai uses it
Use a company's deep-analysis page to check your unrealized position and cost context before deciding whether a name is a sensible harvest candidate, and read Knowledge Base entries on the wash-sale and superficial-loss rules so you don't accidentally disqualify the loss.
Cross-border note. In the US the wash-sale rule (IRC §1091) covers a 61-day window and "substantially identical" securities; net capital losses offset gains first, then up to $3,000/year ($1,500 if married filing separately) against ordinary income, with the remainder carried forward indefinitely. In Canada the superficial-loss rule uses 30 days before and after and "identical property" (and counts affiliated persons like your spouse, RRSP, or TFSA); allowable capital losses offset only taxable capital gains — not ordinary income — and can be carried back 3 years or forward indefinitely.
FAQ
If I sell a stock at a loss, can I just buy it right back to keep my position?
Not without losing the deduction. Rebuying the same or substantially identical/identical security within 30 days before or after the sale triggers the US wash-sale or Canadian superficial-loss rule, which disallows the loss for now. A common workaround is buying a similar-but-different fund (e.g., a different index ETF) to keep market exposure.
I have no capital gains this year — is harvesting still worth it?
It can be. In the US, up to $3,000 of net capital loss per year can offset ordinary income, and any excess carries forward indefinitely. In Canada, capital losses generally offset only capital gains, but you can carry them back 3 years against prior gains or forward indefinitely, so banking the loss can still pay off later.
Check your understanding
A Canadian investor sells RY.TO shares on June 10 to realize a $5,000 loss, then has her TFSA buy the same RY.TO shares on June 20 and still holds them on July 11. What is the tax result?
A TFSA is an affiliated person under Canada's rules, so rebuying the identical property inside the 30-day window triggers the superficial-loss rule; the denied loss is added to the substituted property's cost base. (The $3,000 cap is a US ordinary-income rule, not Canadian.)