Tax-Loss Harvesting in Retirement: Losses in High Years, Gains in Low Ones

It saves tax on gains you realize this year, plus up to $3,000 of other income, and carries the rest forward. You sell a holding that is worth less than you paid, use the loss to offset realized capital gains without limit, then offset up to $3,000 of ordinary income ($1,500 if married filing separately), and carry any remainder into later years (IRS Topic 409). You buy a similar, not identical, holding so your market exposure barely changes.

The honest description is that harvesting is mostly a deferral. The replacement shares have a lower basis, so the tax you skip today is waiting in the new position. Deferral turns into permanent savings in three cases, and all three are common after 60:

1. 1The deferred gain is realized later at 0%. A year with low taxable income, before Social Security and RMDs start, lets you realize it for nothing.
2. 2The gain is never realized. Shares held until death get a basis equal to their value at death (IRS Publication 551), and shares given to charity are never taxed on their gain.
3. 3The loss avoids a threshold. Keeping income under an IRMAA tier or the net investment income tax threshold saves more than the rate on the gain.

Harvest losses when your marginal rate on gains is high this year; harvest gains when it is 0%. The rate that matters is not only the 15% or 20% on the return. It includes the 3.8% net investment income tax above $250,000 of modified AGI for joint filers ($200,000 single) (IRS Topic 559), any IRMAA tier you would cross, and, if you receive Social Security, the extra benefits that become taxable.

Gain harvesting is simpler than loss harvesting because the wash-sale rule applies only to losses (IRS Publication 550). You can sell a position at a gain and buy it straight back the same day. Nothing about the portfolio changes except that your basis is now higher, which shrinks the tax on any later sale.

More than most people expect, because the 0% threshold applies to taxable income, after deductions. Long-term gains and qualified dividends are taxed at 0% to the extent they fall under $98,900 of taxable income for joint filers in 2026, 15% up to $613,700, and 20% above (Rev. Proc. 2025-32). Gains stack on top of ordinary income, so every dollar of IRA withdrawal, pension or Roth conversion uses up 0% room.

Three cautions. First, the 0% room competes with Roth conversions, which fill the same low brackets with ordinary income; our guide to Roth conversions before RMDs helps decide which use of the room is worth more. Second, realized gains raise AGI, which matters for Medicare premiums two years later and, for anyone under 65 on a marketplace plan, for premium tax credits. Third, your state may tax the gain even when the IRS does not.

You lose the deduction if you buy substantially identical securities within 30 days before or after the sale at a loss, a 61-day window. The rule also applies when your spouse, or a corporation you control, makes the purchase. Normally the disallowed loss is added to the basis of the new shares, so it is deferred rather than lost (IRS Publication 550).

IRAs are the exception that costs real money. Rev. Rul. 2008-5 holds that when you sell at a loss and your IRA or Roth IRA buys substantially identical securities within the window, the loss is disallowed and the IRA's basis is not increased (Rev. Rul. 2008-5). The loss does not move anywhere. It is gone.

The IRS has never published a bright-line test for "substantially identical." A common, conservative approach is to replace a fund with one that tracks a different index: an S&P 500 fund with a total-market fund, or one international index with another provider's fund built on a different index. Before any harvest, turn off dividend reinvestment for that fund in every household account, and look at what each IRA is set to buy in the next month. Our index funds vs. ETFs guide covers which wrapper belongs in which account.

The $3,000 offset saves your ordinary-income rate on $3,000 a year, and carryforwards die with you. After losses cancel all of the year's gains, $3,000 can offset IRA withdrawals, pension income or interest (IRS Topic 409). That figure is set in the tax code and is not indexed to inflation.

Large carryforwards are common among people who sold during 2008 or 2022. The IRS is explicit about what happens next: a decedent's capital losses, including carryovers, can be deducted only on the final income tax return, and cannot be deducted on the estate's return (IRS Publication 559). For a married couple, the part of a joint carryover that belongs to the deceased spouse is generally lost after the final joint return; how a carryover is split between spouses depends on whose property produced the loss, so ask your preparer to document it now.

It makes gains worth holding and losses worth selling. Inherited property generally takes a basis equal to its fair market value at the date of death (IRS Publication 551). For a winner, that erases the gain. For a loser, the basis steps down to the lower value and the loss disappears. Nobody ever deducts it.

Gifts do not help either. When you give property worth less than your basis, the recipient's basis for figuring a loss is the lower market value at the time of the gift (IRS Publication 551), so the loss is gone. The order of operations for an older owner:

1. 1Sell positions with losses, and use the losses against gains you need to realize.
2. 2Give appreciated shares to charity rather than cash. Long-held appreciated securities given to a public charity are generally deductible at market value, and the gain is never taxed (IRS Publication 526). After 70½, a qualified charitable distribution from an IRA is often better still.
3. 3Give cash, not losing shares, to family. Sell the loser, keep the loss, gift the proceeds. See gifting to children and grandchildren.
4. 4Hold the lowest-basis shares for heirs. Spend from IRAs, cash and high-basis lots first; the step-up handles the rest.

For married couples, jointly held assets generally get a new basis on the deceased spouse's half, and in community property states generally on the whole (IRS Publication 551). The surviving spouse can often sell and simplify with little tax afterward. The estate planning basics guide covers titling.

Realized gains count in full toward both, so a harvested loss can be worth more than the capital-gains rate suggests. Medicare Part B and Part D premiums rise in tiers based on modified AGI from the tax return two years earlier (SSA). In 2026, the standard Part B premium is $202.90 a month and the first surcharge tier, which begins above $218,000 of joint MAGI, raises it to $284.10 per person (CMS). The tiers are cliffs: one dollar over costs the full surcharge for the year.

Social Security works the same way at lower incomes. Up to 50% of benefits become taxable once combined income (AGI plus nontaxable interest plus half of benefits) passes $32,000 on a joint return, and up to 85% above $44,000; the single-filer lines are $25,000 and $34,000 (SSA). In the range where benefits are being phased into income, a dollar of capital gain can also make up to 85 cents of benefits taxable, so the effective rate on the gain is well above its stated rate. Most readers with large portfolios are already at the 85% maximum, where this effect has run its course; retirees with modest other income should run both versions of the return before realizing gains.