Tax-loss harvesting

Tax-loss harvesting is the deliberate practice of selling investments at a loss to generate capital losses that offset your capital gains, lowering your tax bill in a year when you have gains to shelter. It is most associated with stock portfolios, but it matters to real estate investors for a specific reason: capital losses and capital gains net against each other across asset types, so a harvested loss from securities can offset the capital gain from selling a property, and vice versa. In a year you sell an appreciated building, harvesting losses elsewhere can meaningfully cut the tax.

How the netting works

The mechanics rest on how capital gains and losses combine. At year end, your capital losses first offset your capital gains of the same character, short-term losses against short-term gains, long-term against long-term, then the net amounts offset each other. If losses exceed gains, you can deduct up to $3,000 of net capital loss against ordinary income, and carry the rest forward indefinitely to future years.

The planning move is to time the recognition of losses to the years you have gains. If you are sitting on an investment that has dropped, selling it in a year when you also realize a large gain lets the loss cancel part of that gain dollar for dollar. A $50,000 harvested loss against a $50,000 capital gain wipes out the tax on the gain entirely. The losses are a resource; harvesting is about spending them in the right year.

Capital losses offset capital gains dollar for dollar, with up to $3,000 of excess loss deductible against ordinary income and the rest carried forward, so harvesting losses in a gain year cuts the tax.

Where it meets real estate

The cross-asset connection is what makes this relevant to a real estate investor, and it runs both directions. When you sell an appreciated property and generate a large capital gain, harvesting losses from your stock portfolio in that same year can offset that real estate gain. Conversely, carried-forward capital losses from prior years, from any source, are available to soak up a future property sale’s gain.

This ties directly to selling without a 1031: one reason a taxable property sale can beat a 1031 exchange is that you have capital losses, harvested or carried forward, waiting to offset the gain, which a 1031 would waste by deferring. So an investor deciding whether to exchange or sell should look at their whole capital picture, including harvestable and carried-forward losses, not just the property in isolation. The suspended passive losses that release on the property’s sale are a separate, additional layer of offset on top of this.

Harvested and carried-forward capital losses can offset the gain from selling a property, which is one reason a taxable sale can beat a 1031 exchange when you have losses waiting to be used.

The limits: passive losses and the wash-sale rule

Two important boundaries. First, the passive-loss walls still stand. Capital-loss harvesting works within the capital-gain-and-loss system; it does not let ordinary passive rental losses offset capital gains outside their rules. Keep the two systems straight: harvesting is about capital losses and capital gains, not about the passive rental losses governed by Section 469.

Second, the wash-sale rule, though it applies to securities, not to real estate directly. If you sell a security at a loss and buy the same or a substantially identical security within 30 days before or after, the loss is disallowed, you cannot sell a stock for the tax loss and immediately buy it back. This constrains harvesting in your securities portfolio. Real estate is not subject to the wash-sale rule the same way, but the interaction matters when you are harvesting stock losses to offset a property gain, covered further on the wash sales page.

Loss harvesting works within the capital-gain system and does not free passive rental losses, and in the securities portfolio the wash-sale rule disallows a loss if you rebuy the same security within 30 days.

The bottom line

• Tax-loss harvesting sells losers to bank capital losses that offset capital gains and cut your tax.
• Capital losses offset gains dollar for dollar, with $3,000 of excess deductible against ordinary income and the rest carried forward.
• Harvested and carried-forward losses can offset the gain from selling a property, across asset types.
• This is one reason a taxable sale can beat a 1031 exchange when you have losses to use.
• Harvesting works within the capital system and does not free passive rental losses; the wash-sale rule limits it for securities.

For when a taxable sale beats deferral, read selling without a 1031. For the rule that limits repurchases, see wash sales. For the full picture, start at the advanced real estate tax strategies hub.

Last verified August 2026.