Tax-loss harvesting remains one of the most effective strategies for reducing your bill at year end, and the basic mechanics of the practice are unchanged for 2026. You can still use capital losses to offset capital gains and deduct up to $3,000 of ordinary income when losses exceed gains. What has changed is the environment around the strategy, following passage of the One Big Beautiful Bill Act.
The OBBBA, signed into law to address the scheduled sunset of the 2017 Tax Cuts and Jobs Act provisions, made the individual income tax brackets from the TCJA permanent. That keeps the top marginal rate at 37 percent. High-net-worth investors now also face new itemized deduction caps that place an aggregate ceiling on total deductions, which means that while the mechanics of harvesting losses are familiar, the net benefit will differ depending on your overall deduction picture.
How tax-loss harvesting works
Tax-loss harvesting is the practice of selling securities at a loss to offset taxable gains elsewhere in your portfolio. When you sell a stock or fund that has declined in value below what you paid for it, the realized loss can be used to cancel out an equivalent amount of capital gains, reducing the amount of income subject to capital gains rates. If your losses exceed your gains in a given year, you can apply up to $3,000 of the remaining loss against ordinary income, with any unused losses carrying forward to future years.
The strategy is particularly valuable at year end when investors review their portfolios and identify underperforming positions that can be sold to generate losses. Replacing the sold position with a similar but not identical security allows you to maintain your investment exposure while locking in the benefit.
The wash-sale rule limits the strategy. If you sell a security at a loss and repurchase the same or a substantially identical security within 30 days before or after the sale, the IRS disallows the loss. The wash-sale window covers 61 days in total and applies to purchases in a taxable account, an IRA or a spouse’s account.
What OBBBA changed and what it did not
The OBBBA’s most relevant change for harvesting purposes is the permanent extension of the TCJA brackets. Previously, those brackets were scheduled to expire after 2025 and revert to pre-TCJA rates, which would have raised the top ordinary income rate from 37 percent to 39.6 percent. That reversion was prevented. For harvesting purposes, this matters because losses applied against ordinary income carry more value in higher-bracket years.
The new itemized deduction cap introduced by the OBBBA adds complexity for high earners. The aggregate limit means that some investors who previously benefited from stacking multiple deductions may find their total deduction benefit reduced even as their capital loss activity remains unchanged.
The long-term capital gains rates of 0, 15 and 20 percent remain in effect. The thresholds at which these rates apply shifted with inflation adjustments but the rate structure itself was not altered by the OBBBA.
How to approach year-end harvesting in 2026
Review your portfolio for unrealized losses before December 31. Prioritize harvesting losses in positions where you can find a suitable non-identical replacement, allowing you to maintain market exposure without triggering the wash-sale restriction. Short-term losses, which offset short-term gains taxed as ordinary income, are generally more valuable than long-term losses used to offset long-term gains taxed at lower rates.
If your total losses exceed your gains, remember that only $3,000 can offset ordinary income in the current year, with the remainder carrying forward. Planning this carryforward is part of a multi-year strategy, not just a single-year calculation.
Given the new deduction caps, high-net-worth investors should coordinate their harvesting strategy with their overall itemized deduction picture before assuming the full benefit will flow through as expected.
