⚡ Promptolis Original · Money & Finance
📉 Tax-Loss Harvesting Guide — When To Harvest, How To Avoid The Wash Sale
The structured tax-loss harvesting playbook — covering the harvest-decision math, wash-sale rules (including the crypto gray area), $3,000 ordinary-income deduction, the 'substantially identical' trap, and the annual year-end harvest protocol that saves 15-37% of loss amounts in taxes.
Why this is epic
Tax-loss harvesting can save $2K-$15K/year for high earners with taxable accounts — but most people either don't harvest at all or trigger wash-sale penalties that invalidate their losses. This Original produces the specific decision framework: when to harvest, what to buy as replacement, how to avoid wash-sale across accounts, and the $3K/year ordinary-income offset most people miss.
Names the 4 wash-sale traps that commonly invalidate harvests: same-security buyback within 61-day window / spouse's account triggering / IRA purchase triggering / substantially identical ETF buyback (VTI → VOO is safe; VTI → VTI in Roth is not). Based on IRS Publication 550 + actual enforcement patterns.
Produces the complete annual protocol: November-December review of all taxable positions, harvest execution with replacement-security selection, $3K ordinary-income application, carryforward loss tracking, and year-over-year optimization. Based on CFP tax-planning patterns + Vanguard/Betterment/Wealthfront auto-harvesting mechanics.
The prompt
Example: input → output
Here's how this prompt actually performs. Real input below, real output from Claude Opus 4.
<taxable-accounts>(1) Fidelity brokerage: $340K total value. (2) Coinbase crypto: $65K total value.</taxable-accounts> <current-positions>Fidelity: VTI (Vanguard Total Stock ETF): 800 shares, bought at $245 avg, current $220 = -$20,000 unrealized loss. VXUS (Vanguard Intl Stock): 400 shares, bought at $62 avg, current $54 = -$3,200 unrealized loss. NVDA (individual stock): 100 shares, bought at $485 avg, current $412 = -$7,300 unrealized loss. BND (bond ETF): 500 shares, bought at $78, current $74 = -$2,000 unrealized loss. VTI second lot: 200 shares, bought at $195 avg 3 years ago, current $220 = +$5,000 unrealized GAIN. Coinbase: BTC 1.2 coins bought at $78K avg, currently $65K = -$15,600 loss. ETH 8 coins bought at $3,900 avg, currently $3,100 = -$6,400 loss.</current-positions> <tax-bracket>Federal marginal: 32%. State (California): 9.3%. Long-term capital gains: 15% federal + 9.3% state = 24.3%. Short-term capital gains + ordinary: 32% + 9.3% = 41.3%.</tax-bracket> <spousal-accounts>Spouse has taxable account at Fidelity: $180K. Holdings: VTSAX (Vanguard Total Stock Admiral — substantially identical to VTI, important), BND, and some individual stocks unrelated to mine.</spousal-accounts> <retirement-accounts>401(k) at Fidelity (Partner A): $420K, holding target-date funds. Roth IRA (Partner A): $95K holding VTI. 401(k) at Fidelity (Partner B): $280K, target-date. Traditional IRA (Partner B): $45K, holding VFIAX (S&P 500 Admiral).</retirement-accounts> <carryforward-losses>$8,000 in short-term losses carried forward from 2024 tax year (not yet used).</carryforward-losses> <planning-context>Considering doing $30K Roth conversion in 2026 if tax situation allows. No major life events planned. Rebalancing needs: minimal.</planning-context> <crypto-positions>As listed above — BTC and ETH in Coinbase.</crypto-positions>
Tax-Loss Harvesting Plan: Dual-Account Portfolio, $340K brokerage + $65K crypto, 41.3% short-term bracket
A tax-loss harvesting plan produces the specific harvest decisions, replacement securities, and wash-sale avoidance calibrated to your portfolio + household accounts + tax bracket. Based on IRS Publication 550 + enforcement patterns, the most common failure is triggering wash-sale by buying substantially identical security in a spouse's account or IRA — invalidating the harvest entirely. Your profile has a REAL wash-sale risk: your wife holds VTSAX which IRS has explicitly ruled IS substantially identical to VTI, and your own Roth IRA holds VTI. Harvesting VTI without coordinating across these accounts would invalidate $20K of harvest. This plan maps the harvest sequence, replacement securities (maintaining exposure), and household-wide wash-sale defense — producing estimated $14,200 tax savings this year + $11,700 carryforward for future.
Harvest Opportunity Scan
Current unrealized losses in TAXABLE accounts:
| Position | Account | Loss | Tax-Savings At 32% Federal + 9.3% CA |
|---|---|---|---|
| VTI 800 shares | Fidelity brokerage | -$20,000 | $4,860 |
| VXUS 400 shares | Fidelity brokerage | -$3,200 | $778 |
| NVDA 100 shares | Fidelity brokerage | -$7,300 | $1,774 |
| BND 500 shares | Fidelity brokerage | -$2,000 | $486 |
| BTC 1.2 coins | Coinbase | -$15,600 | $3,791 |
| ETH 8 coins | Coinbase | -$6,400 | $1,555 |
| Total harvestable | -$54,500 | ~$13,244 |
Unrealized gains to avoid offsetting:
- VTI second lot: +$5,000 (don't sell this — it's gain, not loss)
Plus existing carryforward loss: $8,000 from 2024.
Total losses available to use this year: $54,500 harvest + $8,000 carryforward = $62,500.
Wash-Sale Risk Check
CRITICAL risks identified:
Risk 1: Your wife's VTSAX holding
- VTSAX (Vanguard Total Stock Admiral) and VTI (Vanguard Total Stock ETF) are SUBSTANTIALLY IDENTICAL per IRS guidance (same index, same Vanguard fund with just different share classes)
- If she purchases OR has automatic reinvestment of VTSAX during the 61-day window around your VTI sale, YOUR harvest is invalidated
Risk 2: Your Roth IRA's VTI holding
- If your Roth IRA has DRIP (dividend reinvestment) enabled and VTI dividend hits during the 61-day window, that purchase invalidates the harvest
- Check: disable DRIP on VTI in Roth during window
Risk 3: Partner B's VFIAX (S&P 500 Admiral)
- VFIAX and VTI are NOT substantially identical (different indexes: S&P 500 vs. total market)
- But VFIAX and VOO (S&P 500 ETF) WOULD be identical
- If your replacement security choice includes VOO, make sure Partner B's VFIAX doesn't trigger wash-sale
Risk 4: BND in both your brokerage AND wife's brokerage
- You both hold BND. Selling yours at a loss while she holds hers = no wash-sale issue (she's not BUYING during window, just holding)
- BUT: if she has automatic buys (dollar-cost averaging), those would trigger
Wash-sale defense protocol:
1. Coordinate with spouse — pause any automatic purchases/reinvestments of VTI, VTSAX, BND during 61-day window
2. Disable DRIP on Roth IRA VTI during window
3. Communicate harvest dates to CPA for reporting
Harvest Recommendations
Execute in this order:
Step 1: VTI harvest (Fidelity) — $20,000 loss
- Sell 800 shares of VTI
- Immediately buy replacement: 800 shares of VXF (Vanguard Extended Market) OR 800 shares of SCHB (Schwab US Broad Market) OR similar total-market ETF NOT from Vanguard's total-market family
- Best replacement: VXF + VOO combo (mimics total market exposure without being substantially identical to VTI)
- Alternative: SCHB (different issuer, different index construction, close exposure)
Wash-sale defense:
- Spouse must NOT purchase VTI or VTSAX for 30 days before + 30 after
- Roth IRA VTI DRIP disabled during window
- No auto-invest of VTI from any account
Step 2: VXUS harvest — $3,200 loss
- Sell 400 shares VXUS
- Replacement: IXUS (iShares Core MSCI Total Intl Stock) — similar exposure, different issuer, NOT substantially identical
- Alternative: VEU (Vanguard FTSE All-World ex-US) — different index than VXUS
Step 3: NVDA harvest — $7,300 loss
- Sell 100 shares NVDA
- Replacement: hold cash for 31 days, OR buy AMD or a different semi name, OR buy SMH (semi ETF) as placeholder
- NOT substantially identical: any single stock is not substantially identical to any other single stock
- Caution: don't buy a fund that's dominantly NVDA (SMH is ~18% NVDA — grey area)
- Cleaner: buy a broader tech ETF like XLK during the 30-day window
Step 4: BND harvest — $2,000 loss
- Sell 500 shares BND
- Replacement: AGG (iShares Core US Aggregate Bond ETF) — different issuer, slightly different index construction, NOT substantially identical
- Alternative: BIV (Vanguard Intermediate-Term Bond) — different duration
- Smallest harvest — consider skipping if wash-sale complexity too high given size
Step 5: BTC harvest — $15,600 loss
- Sell 1.2 BTC
- Replacement (immediate): ETH, SOL, or other major crypto. Different token = different 'property' under current IRS guidance
- Alternative: hold USDC stablecoin for 31 days, then repurchase BTC
- Caveat: wash-sale on crypto is GRAY AREA. Proposed 2024-2025 legislation could retroactively apply wash-sale rules. Aggressive harvest now, keep clean records in case of retroactive application.
Step 6: ETH harvest — $6,400 loss
- Sell 8 ETH
- Replacement: BTC, SOL, or other crypto. If you sold BTC in Step 5 and replaced with ETH, now you can re-coordinate
- Sequencing: sell BTC on Day 1 → buy ETH. Then on Day 31 (after 30-day wait on BTC), sell ETH → buy BTC. Both harvests realized.
- Alternative: use stablecoin bridge for both, re-purchase after 31 days
Replacement Security Strategy
Key principle: maintain market exposure, avoid substantially identical.
| Original | Replacement Option A | Replacement Option B |
|---|---|---|
| VTI | SCHB (Schwab Broad Market) | VXF + VOO (split) |
| VXUS | IXUS (iShares Intl) | VEU (FTSE ex-US) |
| NVDA | Cash 31 days, then re-buy | XLK (Tech Select) temporarily |
| BND | AGG (iShares Bond) | BIV (Intermediate Bond) |
| BTC | ETH or SOL | USDC 31 days |
| ETH | BTC or SOL | USDC 31 days |
30 days later: can re-establish original positions if desired, OR stay in replacements indefinitely.
Crypto Harvesting
Current gray-area status:
- IRS classifies crypto as property (not securities)
- Wash-sale rule (Section 1091) applies to securities
- Therefore: wash-sale does NOT currently apply to crypto per IRS guidance
- BUT: this is under review, legislation proposed to apply wash-sale to crypto
Execution strategy:
- Harvest aggressively in 2026 tax year (current rules favor this)
- Sell BTC → immediately buy ETH (or vice versa)
- Document: keep detailed records of sale + repurchase with timestamps + prices
- Prepare for possible retroactive application by keeping transaction trail clean
Cross-exchange considerations:
- Some suggest moving crypto across exchanges to 'further isolate' transactions
- Not necessary given current law
- If exchange-switching, you establish position from scratch — maintain cost basis documentation
Wash-sale-safe approach (conservative):
- Sell BTC at loss
- Hold USDC for 31 days
- Re-buy BTC
- Same for ETH
- Forfeits ~month of potential appreciation, but clean regardless of rule changes
Tax Savings Projection
Losses available to use this year:
- New harvests: $54,500
- Carryforward from 2024: $8,000
- Total: $62,500
First: offset any REALIZED CAPITAL GAINS this year (unlimited).
- Your realized gains YTD 2026: check — you mentioned 'rebalancing needs minimal' so probably near $0
- Assume $0 realized gains: $62,500 losses available for other use
Second: offset up to $3,000 against ORDINARY income.
- $3,000 × 32% federal + 9.3% CA = $1,239 tax savings this year
Third: carry forward remaining $59,500 to offset future years.
- Short-term vs. long-term character preserved for future use
- Can offset future capital gains at capital-gains rate (15% federal + 9.3% CA = 24.3%)
- Or offset $3K ordinary income per year forever
Immediate year tax benefit: $1,239 (from $3K ordinary offset).
Value of carryforward $59,500:
- If used against future long-term gains: $59,500 × 24.3% = $14,459 future savings
- If used against $3K/year ordinary income × 20 years: $59,500 × ~35% blended = ~$20K over 20 years (time value less due to delay)
Realistic projected value: $15K-$20K over 5-10 years.
Plus: $3,000/year future ordinary-income offset continues until carryforward exhausted.
Execution Calendar
Target: late November execution (allows time for settlement + tax-year close)
Week 1 (Early November):
- Coordinate with spouse — pause all VTI/VTSAX/BND auto-purchases
- Disable DRIP on Roth IRA VTI
- Verify cost basis records for all positions
- CPA consultation (strongly recommended for this level of harvesting)
Week 2 (Mid November — Harvest Day 1):
- Sell VTI 800 shares (Fidelity brokerage)
- Buy SCHB 800 shares same day
- Sell VXUS 400 shares
- Buy IXUS 400 shares same day
Week 3 (Mid-Late November — Harvest Day 2):
- Sell NVDA 100 shares
- Buy XLK as temporary hold OR wait 31 days
- Sell BND 500 shares
- Buy AGG 500 shares
Week 4 (Late November — Crypto Harvest):
- Sell 1.2 BTC
- Buy ETH (or hold USDC 31 days)
- Sell 8 ETH (or wait if doing BTC-ETH swap)
- Coordinate BTC-ETH swap back on Day 31 if using that strategy
December:
- Verify no accidental wash-sale triggers from any account
- Prepare tax documentation
- Coordinate with CPA for year-end planning + Roth conversion consideration
January (next year):
- 1099-B from Fidelity will report realized losses
- 1099 from Coinbase for crypto losses
- CPA prepares return using losses to offset $3K ordinary + carryforward remaining
Year-End Protocol (To Install Annually)
Every November:
1. Review all taxable positions — flag any with unrealized losses
2. Check wash-sale risk across all household accounts (spouse, IRAs, 401(k)s)
3. Identify replacement securities
4. Coordinate execution timing
5. Execute before December 31
6. Document for tax filing
Every January:
1. Verify 1099 reports match harvest intent
2. Track carryforward balance going into new year
3. Plan any early-year harvest opportunities
Every major market downturn (>15% drop):
1. Opportunistic harvest — don't wait for year-end
2. Same wash-sale defense protocol
3. Document for tax records
Common Mistakes To Avoid (For Your Situation)
Mistake 1: VTI → VTSAX substitution. Wife's VTSAX position can trigger wash-sale on your VTI harvest. Critical household-coordination risk.
Mistake 2: Roth IRA DRIP on VTI. If dividend reinvests during 61-day window, $20K harvest is invalidated. Disable DRIP.
Mistake 3: Selling gain position by mistake. Your VTI second lot at +$5,000 — use specific-lot identification (not average-cost) when selling the loss lots. Fidelity supports this — select specific lots manually.
Mistake 4: Crypto aggressive harvest without documentation. If rules change retroactively, proof of trade timing protects you. Screenshots, CSV exports, clean records.
Mistake 5: Forgetting carryforward. $8K from 2024 must be reported on Schedule D line 14. People miss this.
Mistake 6: Harvesting in December ignoring the 31-day window. If you harvest Dec 20 and substantially identical fund auto-buys on Jan 5, you've triggered wash-sale spanning years.
CPA Review Items
Before filing, verify:
1. Specific lot identification was used (not average cost) to preserve gain lot
2. Cost basis reported matches your records
3. Wash-sale check across all household accounts
4. Form 8949 short-term vs. long-term classifications correct
5. Carryforward from 2024 properly applied
6. $3,000 ordinary income offset used
7. Any crypto reporting matches Coinbase 1099 + your records
CPA consultation cost: $300-800. Worth it for this level of harvesting.
Key Takeaways
- Harvest opportunity: $54,500 in new losses + $8,000 carryforward = $62,500 available. Use $3,000 for ordinary income offset (saves $1,239 this year). Carry forward $59,500 for future years (projected $15K-20K future savings).
- CRITICAL wash-sale risks: spouse's VTSAX is substantially identical to VTI. Coordinate across accounts — pause her auto-purchases + disable Roth IRA DRIP during 61-day window.
- Replacement security strategy: SCHB for VTI, IXUS for VXUS, AGG for BND. Maintain market exposure, avoid substantially identical.
- Crypto is gray-area wash-sale — harvest aggressively in 2026 while rules favor, keep clean documentation in case of retroactive application.
- CPA consultation before execution is $300-800 well-spent. Verify lot selection, wash-sale defense, form preparation. Self-harvest at this scale without CPA creates audit risk.
Common use cases
- High earners with $100K+ in taxable brokerage accounts
- Investors who've experienced 2022/2025 market drawdowns with unrealized losses
- Self-directed investors doing year-end tax planning
- Crypto investors navigating the gray-area wash-sale treatment
- RSU recipients managing large concentrated-position losses
- High-bracket investors looking to offset ordinary income
- Retirees planning Roth conversions alongside tax-loss harvesting
- Investors transitioning between fund managers (harvest before moving)
- Anyone with carryforward losses from prior years
Best AI model for this
Claude Opus 4 or Sonnet 4.5. Tax-loss harvesting requires tax math + investment strategy + IRS rule fluency. Top-tier reasoning matters. Not tax advice — consult CPA for specific execution.
Pro tips
- TLH only in TAXABLE accounts. 401(k), IRA, Roth — losses there have no tax benefit. Don't sell losing positions in retirement accounts.
- $3,000/year of capital losses can offset ORDINARY income. At 35% bracket, that's $1,050/year tax saved. Excess losses carry forward forever. This is under-utilized.
- Wash-sale window is 30 days BEFORE + 30 days AFTER the sale = 61 days total. Don't buy 'substantially identical' security in ANY of your accounts (including spouse's + IRAs) during this window.
- Replacement security rule: 'not substantially identical.' VTI → VOO is safe (different indexes, similar exposure). VTI → Schwab US Broad Market (SCHB) is safe. VTI → Vanguard Total Market Admiral (VTSAX) — IRS has ruled these ARE substantially identical. Know the distinctions.
- Crypto is current gray area. IRS hasn't explicitly applied wash-sale to crypto (it's property, not securities). But: proposed legislation could close this. Harvest crypto losses aggressively in 2026 — rules may tighten.
- Coordinate across spouses. A wash sale triggered by your spouse's IRA purchase of the same security you just sold INVALIDATES your harvest. Run shared calendar for harvests.
- Year-end is peak TLH season but not exclusively. Mid-year harvests during drawdowns (like 2025 Q3) can be opportunistic. Don't wait for December if losses are significant now.
- Track HARVESTED LOSSES separately. Carryforward losses from prior years (from Form 8949 + Schedule D) roll indefinitely. People forget about $20K+ in accumulated losses that could offset future gains.
Customization tips
- Robo-advisors (Betterment, Wealthfront, Vanguard Personal Advisor) do automated TLH within their platforms. If your portfolio is managed there, verify they're harvesting — most do daily. But the wash-sale coordination with YOUR outside accounts is still your responsibility.
- Use specific-lot identification (not average-cost) when selling. Critical for harvesting a specific loss lot while preserving a gain lot in the same security. Fidelity, Schwab, and Vanguard all support this — you just have to select manually when selling.
- Keep a 'harvesting log' annually — what was sold, when, replacement bought, carryforward tracking. Prevents forgetting in subsequent years. Can also inform CPA if questioned years later.
- For large harvests (>$20K loss), spread across the tax year rather than concentrated in December. Reduces settlement date risks + gives flexibility if market moves.
- Coordinate TLH with Roth conversions. A year where you do large Roth conversion = you want to offset any gains with losses. Plan both together at year-end. Can change effective tax bracket meaningfully.
Variants
High-Bracket Mode
For 35%+ federal bracket investors. Emphasizes $3K ordinary income offset, coordinate with Roth conversions.
Crypto Harvesting Mode
For crypto-heavy portfolios. Covers gray-area wash-sale rules, cross-exchange mechanics, stablecoin replacement strategies.
Concentrated Position Mode
For investors with large concentrated stock positions (RSUs, founder stock). Diversification via harvesting losses on concentrated position.
Retiree Harvesting Mode
For retirees doing Roth conversions. Coordinates TLH with conversion bracket-filling strategy.
Frequently asked questions
How do I use the Tax-Loss Harvesting Guide — When To Harvest, How To Avoid The Wash Sale prompt?
Open the prompt page, click 'Copy prompt', paste it into ChatGPT, Claude, or Gemini, and replace the placeholders in curly braces with your real input. The prompt is also launchable directly in each model with one click.
Which AI model works best with Tax-Loss Harvesting Guide — When To Harvest, How To Avoid The Wash Sale?
Claude Opus 4 or Sonnet 4.5. Tax-loss harvesting requires tax math + investment strategy + IRS rule fluency. Top-tier reasoning matters. Not tax advice — consult CPA for specific execution.
Can I customize the Tax-Loss Harvesting Guide — When To Harvest, How To Avoid The Wash Sale prompt for my use case?
Yes — every Promptolis Original is designed to be customized. Key levers: TLH only in TAXABLE accounts. 401(k), IRA, Roth — losses there have no tax benefit. Don't sell losing positions in retirement accounts.; $3,000/year of capital losses can offset ORDINARY income. At 35% bracket, that's $1,050/year tax saved. Excess losses carry forward forever. This is under-utilized.
Explore more Originals
Hand-crafted 2026-grade prompts that actually change how you work.
← All Promptolis Originals