Tax loss harvesting is a strategy that investors use to reduce their tax bill by selling investments that have lost value and offsetting those losses with gains from other investments.

However, there are many misconceptions about tax loss harvesting, including when it's valuable and how to do it effectively.

In today's episode of Ready for Retirement, we'll debunk some of the most common myths about

tax loss harvesting and help you understand how to use this strategy to your advantage.

This is another episode of Ready for Retirement. I'm your host, James Cannell, and I'm here to

teach you how to get the most of the life with your money. And now, on to the episode.

Today's episode comes from a listener question. This listener's name is Tim, and Tim wrote in this. He says, let's look at a

hypothetical. John Doe is filing his taxes married finally jointly with his wife and then make

$200,000 per year. John sells his shares of his ABC stock that he held

over a year and makes a $500 profit in doing so. He owes $75 in long-term capital gains tax on that sale

because he's in the 15% federal long-term capital gain tax bracket. Let's assume he then sells a share

of XYZ stock that he also held over a year and he

loses $100 on that sale. He can now subtract the $100 long-term loss from his $500, long-term profit,

and he now has a net gain of $400, which now means he owes $60 in taxes. In the end, where long-term gains are concerned, he lost $100

in his tax-loss harvesting effort to reduce his taxes by $15, which is the difference between

$75 paid in taxes versus paying only $60. Unless you have reasonable certainty that the new

investment vehicle you reinvest the money from the sale of XYZ will yield at least $85.

So the $100 you've lost minus the $15 tax benefit, you've still lost money.

I've never heard any presenter state explicitly the tax loss harvesting still results in a net loss.

They mostly go off on a tangent about wash sale rules.

A concrete example as

above, of course, corrected for any errors or misunderstandings I have about the topic,

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