[Araceli]

Hi everyone! I’ve been trying to wrap my head around the concept of **tax-loss harvesting**, but most explanations I’ve found are full of financial jargon.

I was wondering if someone could break it down in a super simple way — like how you might explain it to a 5th grader.

Can you use a fun analogy with **apples and oranges** (or any fruits, really) to help make it easier to understand?

I’m hoping for something light and easy to follow, not a technical deep dive. Just a basic idea of how it works and why people use it.

Thanks in advance! I really appreciate your help in making this topic a bit more digestible!

[Jeff]

Simple Example-
Apples & Oranges
• Let’s say you bought apples for $100. Later, you sell them for $150.

* You made a $50 gain, and you’d owe taxes on that gain.
• But you also bought oranges for $100, and now they’re only worth $50.

* If you sell the oranges, you’ll have a $50 loss.

Tax-Loss Harvesting in Action:
• You sell the oranges to “harvest” the $50 loss.

• That $50 loss cancels out the $50 gain from the apples.

Result: No taxable gain, so no taxes owed. There are rules in place that you can’t buy the same investment you sold for 30 days.

[Hunter]

Tax loss harvesting is a strategy used to reduce taxable income by selling investments that have declined in value and using those losses to offset capital gains or a portion of ordinary income.

When an investor sells an asset at a profit, they owe taxes on that gain.

However, if they also sell an investment at a loss, they can use that loss to lower the amount of taxable gains, effectively reducing their overall tax liability.

If losses exceed gains in a given year, up to $3,000 can be deducted against ordinary income, and any remaining losses can be carried forward to future years.

One critical rule to keep in mind is the wash-sale rule which prevents an investor from repurchasing the same or a “substantially identical” asset within 30 days before or after selling at a loss.

To maintain a balanced portfolio while benefiting from tax loss harvesting, an investor can reinvest in similar, but not identical, assets.

While this strategy can improve after-tax returns, it should be carefully managed to align with broader investment objectives and tax planning considerations.

[Matthew]

Consider three events:
Event #1: The apple crop generated $100k of profit when sold.
Event #2: Over-confident, you then bought seed at high prices.

Event #3: You MIGHT sell your new seed for a $50k capital loss.
Event #1 would normally cause a capital gains tax of $20k ($100k x 20%).

Event #3 (if sold the same year) is TLH, reducing your tax due to $10 [($100k-$50k) x 20%].

Event #3 (if NOT sold the same year) generates a tax-loss carryover of $50k, of which only $3k is deductible yearly.

Now why weren’t we taught this in 7th grade?

[Reiser]

Imagine You Have a Fruit Stand
You sell apples and oranges at your fruit stand. Sometimes you make money when you sell fruit, and sometimes you lose money.

• You bought apples for $1 each and later sold them for $2. That’s a $1 gain per apple.

• You bought oranges for $1, but later you had to sell them for only 50 cents. That’s a 50 cent loss per orange.

What Is Tax Harvesting?
At the end of the year, the Fruit Stand Tax Collector comes to collect a portion of the money you made (your gains).

But here’s the trick: if you show the Tax Collector that you lost money on some oranges, you don’t have to pay as much tax on the money you made from apples.

So, you sell your sad oranges at a loss on purpose, just so you can say:
“Hey, look! I lost money too, not just made money!”
This is called tax-loss harvesting — you’re picking (harvesting) your losses to save money on your taxes.

What Happens Next?
Sometimes, after selling the oranges, you can even buy them back later if you still like oranges — but you have to wait a little bit (usually 30 days), or the Tax Collector says, “Nice try, but that doesn’t count.”

In Summary:
• Tax harvesting is like selling your bad oranges to balance out the profit from your good apples.

• This way, you pay less to the Tax Collector.

[Chris]

You want to cut an orange and an apple each into 10 equal size slices for lunch. Your apple was larger than expected made 12 slices, but your orange was smaller and only made 8 slices.

You decide to leave the orange at home and only take the apple to school.

At lunch, the teacher knows you can only eat 10 fruit slices and sees your 12, so the teacher says that is too many slices and takes 2 from you without realizing that tomorrow you will only have 8 slices of fruit.

You get to eat a total of 18 fruit slices.

Now, if you bring both the apple and the orange to the school, the teacher sees you have 12 apple slices and 8 orange slices for 20 total fruit slices.

That teacher now knows that the extra apple slices will be added to your missing orange slices and doesn’t take any fruit from you. You now get to eat a total of 20 fruit slices.

[Pope]

Tax harvesting is like selling your losing toys so you can save money on your allowance when you buy new ones.

[Bradley]

Buy an Apple for $3 today, tomorrow that Apple is worth $2.
For tax purposes to claim a loss, you sell the Apple at the $2.

This allows you to claim the loss on taxes.

You wait 30 days to buy the same Apple, at a lower entry point.

You benefit from deduction, while maintaining your position.

[Howie]

Someone who does not do tax harvesting will either pay taxes on gains or take losses.

This is an area in which all investors should seek wisdom from more experienced investors (or a CPA).

[Author]

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