What is tax loss harvesting?

Tax loss harvesting is the process of selling securities in a taxable investment account when there is a temporary loss in investment value due to market volatility, when the price of the securities drops below its “tax cost basis,” in order to “bank” the losses so that they can be used to offset future gains, which can reduce or defer your tax bill in the future. When tax-loss harvesting is conducted, a similar fund or funds are used to temporarily or permanently replace the funds sold to capture the tax benefit.