Question

What is tax-loss harvesting and how does it function?

Answer

Tax-loss harvesting is a strategy where you sell investments that have declined in value to realize a capital loss for tax purposes. You can use that loss to offset capital gains from other investments and up to $3,000 of ordinary income each year, with any unused losses carrying forward indefinitely. After selling, you can reinvest in a similar but not substantially identical security to keep your market exposure while capturing the tax benefit.

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