Tax-Loss Harvesting Before Dec. 31, 2026: Bond Losses, the $3,000 Write-Off, 0% Gains Up to $98,900 and the 61-Day Wash-Sale Trap

With Treasury yields at 24-year highs, many bond funds in taxable accounts show losses that can be harvested before Dec. 31, 2026. Photo: Tima Miroshnichenko / Pexels (7567535), Pexels License.

If you own a bond fund in a regular brokerage account, there is a good chance it is showing a loss right now. Earlier this month, CNBC reported that the 10-year and 30-year Treasury yields had climbed to their highest levels in 24 years, last seen in 2002. When yields rise, the prices of existing bonds fall, and many investors who bought bonds or bond funds when yields were lower are now sitting on paper losses.

A paper loss is not good news, but it can be useful. Under U.S. tax law, a loss you actually realize by selling can cancel out capital gains dollar for dollar, reduce up to $3,000 of ordinary income each year, and carry forward indefinitely. That strategy is called tax-loss harvesting, and the deadline to use it for tax year 2026 is the last trading day of the year: Thursday, December 31, 2026.

This guide walks through how tax-loss harvesting works under the official 2026 IRS rules, what a harvested loss is really worth in dollars, how to avoid the 61-day wash-sale trap that wipes out the deduction, and why some households should do the opposite and harvest gains at a 0% federal rate. It closes with a 10-step checklist you can work through before the year-end rush.

Sources used throughout: IRS Topic 409, IRS Publication 550, IRS Revenue Procedure 2025-32, IRS Revenue Ruling 2008-5, IRS Topic 559, CNBC, Charles Schwab, Kiplinger and BlackRock. This is educational U.S. personal-finance content, not personalized tax advice.

Why tax-loss harvesting is in the spotlight this fall

Two forces are colliding in 2026. On one side, rising Treasury yields have pushed down the market value of many bonds and bond funds. On the other, investors who sold winning stocks or received fund distributions this year may have sizable taxable gains. Marianela Collado, a CFP and CPA quoted by CNBC, described harvesting as “a tax-efficient way to offset realized capital gains from a strong equity market while refining portfolio allocations.”

Timing matters too. Kiplinger notes that trades placed in late November and December tend to run into the year-end rush, with “liquidity pinches, trade execution delays, and wider bid-ask spreads as everyone rushes to rebalance at once.” Reviewing your taxable account in October or early November gives you time to make careful decisions instead of rushed ones.

Which accounts qualify

Tax-loss harvesting only works in taxable accounts, such as an individual or joint brokerage account. Losses inside a 401(k), traditional IRA, Roth IRA or HSA do not create a deductible capital loss, because gains and losses inside those accounts are not taxed year to year. As CNBC’s checklist puts it, harvesting “generally does not provide a tax benefit in tax-advantaged accounts such as 401(k)s and IRAs.”

Losses on personal-use property do not count either. The IRS says plainly in Topic 409 that “losses from the sale of personal-use property, such as your home or car, aren’t tax deductible.”

How the rules work in 2026: netting, the $3,000 limit and carryforwards

The mechanics come straight from the IRS. When you sell a capital asset for less than your adjusted basis (usually what you paid), you have a capital loss. When you sell for more, you have a capital gain. Every sale is classified as short-term (held one year or less) or long-term (held more than one year).

Step 1: losses offset gains of the same type first

Short-term losses first reduce short-term gains, and long-term losses first reduce long-term gains. Whatever is left over in one category can then offset net gains in the other. This matters because short-term gains are taxed as ordinary income at your regular bracket (up to 37% in 2026), while long-term gains get lower rates of 0%, 15% or 20%.

Step 2: up to $3,000 of extra loss reduces ordinary income

If your total capital losses are larger than your total capital gains, IRS Topic 409 lets you deduct the lesser of $3,000 ($1,500 if married filing separately) or your net loss against ordinary income such as wages, interest or retirement distributions. That $3,000 figure is set in the tax code and is not adjusted for inflation, so it is the same in 2026 as it has been for decades.

Step 3: the rest carries forward with no expiration date

Any net capital loss beyond the annual limit carries forward to later years. Kiplinger sums it up: “Unused capital losses don’t expire.” You can use a carryover to offset future gains in 2027, 2028 and beyond, plus another $3,000 of ordinary income each year. The IRS provides a Capital Loss Carryover Worksheet in Publication 550 and the Schedule D instructions.

The official 2026 capital gains rates that set the value of a loss

A harvested loss is worth whatever tax it saves, and that depends on the rate the offset gain would have faced. These are the official 2026 thresholds from IRS Revenue Procedure 2025-32, based on taxable income (income after deductions), not gross income:

Filing status (2026)	0% long-term rate up to	15% rate up to	20% rate above
Married filing jointly / surviving spouse	$98,900	$613,700	$613,700
Single	$49,450	$545,500	$545,500
Head of household	$66,200	$579,600	$579,600
Married filing separately	$49,450	$306,850	$306,850

Two more layers can apply. First, short-term gains are taxed at ordinary rates; for 2026 the 22% bracket starts above $50,400 for single filers ($100,800 joint) and the 24% bracket above $105,700 ($211,400 joint), according to IRS release IR-2025-103. Second, the 3.8% net investment income tax (NIIT) applies to the lesser of your net investment income or the amount by which your modified AGI exceeds $200,000 (single or head of household), $250,000 (married filing jointly) or $125,000 (married filing separately), per IRS Topic 559. Those NIIT thresholds are not indexed for inflation.

Illustrative federal tax saved by a $10,000 realized loss under official 2026 rates (IRS Rev. Proc. 2025-32, Topics 409 and 559). State taxes not included. Chart: Dollar Lane (original).

What a harvested loss is really worth: three 2026 examples

The chart above shows the federal tax a $10,000 realized loss can save in different situations. Here is the arithmetic behind it, using the official 2026 rates. These are simplified illustrations that ignore state income tax.

Example 1: offsetting long-term gains (single filer, 15% rate)

Maria is single with about $120,000 of taxable income. In March she sold shares of a stock fund for a $15,000 long-term gain. Her bond fund, held for three years, now shows a $12,000 unrealized loss. If she sells the bond fund before December 31, the long-term loss offsets the long-term gain, and only $3,000 of net gain remains taxable. At her 15% long-term rate, that cuts her federal tax by $1,800 ($12,000 × 15%). Her MAGI is well below the $200,000 NIIT threshold, so the 3.8% surtax is not part of her math. If it were, the same loss would be worth 18.8%.

Example 2: offsetting short-term gains (24% bracket)

Short-term gains are where harvesting pays most. A single filer with taxable income in the 2026 24% bracket who realized a $10,000 short-term gain, perhaps from a stock bought and sold within a year, would owe about $2,400 of federal tax on it. A $10,000 short-term loss harvested before year-end erases that gain and saves about $2,400.

Example 3: no gains at all (married couple, 22% bracket)

Dan and Priya file jointly, have about $180,000 of taxable income (the 22% bracket for joint filers in 2026) and realized no gains this year. If they harvest a $10,000 loss, they can deduct $3,000 against ordinary income on their 2026 return, saving about $660 ($3,000 × 22%). The remaining $7,000 carries forward. They can use it to offset future gains or take another $3,000 per year against ordinary income until it is used up.

The lesson: harvesting is most valuable when you have short-term gains or are in the NIIT zone, and least valuable when the loss can only offset ordinary income at a low bracket. That is why it pays to tally your realized gains, including mutual fund distributions, before deciding how much to harvest.

The wash-sale rule: the 61-day trap that erases your deduction

The most common way harvesting goes wrong is the wash-sale rule under Internal Revenue Code Section 1091. IRS Publication 550 says you have a wash sale if, within 30 days before or after selling stock or securities at a loss, you:

• buy substantially identical stock or securities,
• acquire substantially identical stock or securities in a fully taxable trade,
• acquire a contract or option to buy substantially identical stock or securities, or
• acquire substantially identical stock for your IRA or Roth IRA.

Counting the day of the sale, that is a 61-day window. Publication 550 adds that if you sell and “your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.”

Usually the loss is deferred, not lost

In an ordinary wash sale, the disallowed loss is added to the cost basis of the replacement shares, and your holding period carries over. You still get the benefit eventually, when you sell the new shares, but not on your 2026 return. That defeats the point of year-end harvesting.

The IRA version is worse: the loss can disappear

If your IRA or Roth IRA buys the same security within the window, the loss is disallowed and there is no basis increase. In Revenue Ruling 2008-5, the IRS concluded that the individual’s basis in the IRA or Roth IRA “is not increased.” In practice, that loss is gone for good. Publication 550 confirms the basis adjustment applies to every wash-sale case except the IRA purchase.

Hidden ways to trigger a wash sale

• Automatic dividend reinvestment. If the fund you sold paid a dividend that reinvested within 30 days before the sale, or keeps reinvesting afterward in another account, those small purchases can make part of your loss a wash sale. Turn off reinvestment on positions you plan to harvest.
• Your 401(k) or IRA auto-investing in the same fund. Check payroll contributions and scheduled IRA purchases. CNBC notes the rule “can apply even if the replacement investment is purchased in an IRA or Roth IRA.”
• Buying before you sell. The window looks back 30 days, too. Buying more shares on December 10 and then selling your older, higher-cost lot on December 20 can still be a wash sale.
• Multiple brokers. Brokers generally track wash sales only for identical securities within the same account. Purchases at another brokerage, in your spouse’s account or in your IRA are your responsibility to catch.

What counts as “substantially identical”?

For individual stocks and bonds, selling and rebuying the same security is clearly a wash sale. For funds, the IRS has not drawn bright lines. BlackRock notes that the IRS “has not released” a definitive opinion on how the rule applies to ETFs, and that practitioners look at how much the holdings overlap and how similar the expected returns are. The greater the overlap, the greater the risk. Many investors swap into a fund that tracks a different index (for example, a different bond index or a broader stock index) to stay invested while avoiding near-twins. If you are unsure, ask a tax professional before you trade.

Year-end calendar math

Tax-loss sales count in the year of the trade date, not the settlement date; Publication 550 uses the example of a December 31 sale that settles in January and is still reported on the earlier year’s return. If you sell at a loss on Thursday, December 31, 2026, the look-back window includes purchases made from December 1, 2026, and the look-forward window runs through January 30, 2027. The first safe day to buy back the same security would be January 31, 2027, which is a Sunday, so in practice Monday, February 1, 2027.

Before you sell, pull your realized gains, lot-level cost basis and every account that might buy the same fund within 30 days. Photo: Leeloo The First / Pexels (7887824), Pexels License.

Bond funds: harvest the loss, then reinvest at today’s higher yields

Bonds are the headline opportunity this year. Investors who sold a bond fund at a loss do not have to leave the bond market. Joseph Gotelli of American Century Investments told CNBC that an investor “may be able to move into a different fixed-income fund that fits their goals without buying a substantially identical investment.” Because yields are higher now, the replacement may also pay more income than the fund you sold.

Not everyone needs to sell. Collado told CNBC that investors with a ladder of individual bonds who plan to hold to maturity may not need to act; as bonds mature, the proceeds can be reinvested into higher-yielding issues. If you are holding cash while you wait out a wash-sale window, short-term Treasury bills are one place to park it. Our guide to Treasury bills for U.S. savers explains how they work and how their interest is exempt from state and local income tax.

Watch year-end fund distributions

Many mutual funds distribute capital gains in November and December. Those distributions are taxable in a regular account even if you reinvest them, and they show up on Form 1099-DIV as capital gain distributions. Two practical points: harvested losses can offset those distributions, and buying a fund in a taxable account just before its distribution date can hand you a tax bill on gains you never enjoyed. Check your fund company’s estimated distribution schedule before buying.

Crypto: the wash-sale rule does not apply to coins, for now

Section 1091 covers “stock or securities,” and the IRS has treated virtual currency as property since Notice 2014-21. So under current law, selling a coin at a loss and quickly buying it back is generally not a wash sale. That could change: H.R. 9172 would extend the rule to most digital assets, and on September 16, 2026, the House Ways and Means Committee voted 38–5 to advance H.R. 10357, which includes a wash-sale title. Neither had become law as of mid-October 2026. Spot crypto ETFs and other products that are securities for tax purposes can already fall under the rule.

The flip side: harvesting gains at a 0% federal rate

For some households, the smarter year-end move is tax-gain harvesting: selling appreciated investments on purpose to realize long-term gains while your taxable income sits inside the 0% bracket, then buying back to reset a higher cost basis. The wash-sale rule applies only to losses, so you can repurchase right away after selling at a gain.

How much room you have

Take a retired married couple filing jointly with $60,000 of 2026 taxable income before any capital gains. The 0% long-term rate applies up to $98,900 of taxable income for joint filers, which leaves about $38,900 of room. They could realize up to roughly that amount of long-term gains and owe 0% federal tax on them, then hold the repurchased shares with a higher basis that reduces tax on future sales.

Watch the side effects

• Social Security taxation. Extra gains can make more of your Social Security benefits taxable, which raises taxable income and can shrink your 0% room.
• The senior deduction. The new enhanced deduction of up to $6,000 per person age 65 or older (2025 through 2028) phases out once modified AGI exceeds $75,000 single or $150,000 joint, according to the IRS. Gains count toward that MAGI.
• Medicare IRMAA. Medicare Part B and Part D income-related surcharges generally look back two years, so 2026 income can affect 2028 premiums.
• ACA premium tax credits. If you buy Marketplace coverage, higher income can reduce your subsidy.
• State income tax. Most states tax capital gains as ordinary income, so “0% federal” may not mean 0% overall.

If you are weighing gain harvesting against a Roth conversion, both use the same low-bracket room. Our comparison of Roth vs. traditional IRAs covers how today’s bracket compares with the one you expect in retirement. And if you give to charity, donating appreciated shares you have held more than a year can be even better than selling them; see our guide to the new 2026 charitable deduction.

Harvest now or wait? How 2027 fits in

Because losses carry forward with no expiration, harvesting in 2026 mostly changes when you use the benefit, not whether you get it. If you have 2026 gains to offset, harvesting this year is usually the cleaner choice. The IRS has not announced official 2027 brackets yet; our post on 2027 tax brackets and year-end moves covers the projections, clearly labeled as projections.

Your 10-step tax-loss harvesting checklist for 2026

1. Pull your year-to-date realized gains and losses from each taxable brokerage account, split into short-term and long-term.
2. Add expected fund distributions. Look up your mutual funds’ estimated November and December capital gain distributions.
3. Check your carryover. Find any capital loss carryover on last year’s Schedule D; it is already working for you.
4. List positions trading below cost basis, using specific-lot detail. Your highest-cost lots usually produce the biggest losses.
5. Estimate the value of each loss using the 2026 rates above: short-term gains at your ordinary bracket, long-term at 0%, 15% or 20%, plus 3.8% if you are in NIIT territory.
6. Turn off dividend reinvestment on anything you plan to sell, and review automatic purchases in your 401(k), IRA and your spouse’s accounts.
7. Choose a replacement that keeps your allocation without being substantially identical, or decide to hold cash or T-bills for at least 31 days.
8. Use specific identification when you sell, so the broker sells the high-basis lots you intend.
9. Trade by December 31, 2026, ideally earlier to avoid year-end spreads, and mark your calendar for the end of the 30-day window.
10. Keep records of trade confirmations and replacement purchases, and compare them with your 1099-B when it arrives.

FAQ

What is the deadline for tax-loss harvesting in 2026?

The trade must be executed by the last trading day of the year, Thursday, December 31, 2026. The trade date controls, even if the sale settles in January 2027, according to IRS Publication 550.

How much of a capital loss can I deduct against my salary?

Up to $3,000 per year ($1,500 if married filing separately) after losses have offset all of your capital gains. Anything beyond that carries forward to future years with no expiration.

Can I buy the same fund back after harvesting a loss?

Yes, but wait at least 31 days after the sale and make sure you did not buy it in the 30 days before the sale. Otherwise the wash-sale rule disallows the loss. Buying in an IRA or Roth IRA during that window can make the loss disappear permanently under Revenue Ruling 2008-5.

What is the 0% capital gains bracket for 2026?

Long-term gains are taxed at 0% while taxable income stays at or below $98,900 for joint filers, $49,450 for single filers and married filing separately, and $66,200 for heads of household, per IRS Revenue Procedure 2025-32.

Does the wash-sale rule apply to Bitcoin?

Not to direct crypto sales under current law, because the IRS treats crypto as property. Congress is considering bills, including H.R. 10357, that would change this, but none had become law as of mid-October 2026. Crypto ETFs that are securities can already be covered.

Sources

• IRS, Topic No. 409, Capital gains and losses (reviewed Sept. 24, 2026).
• IRS, Revenue Procedure 2025-32 (2026 inflation adjustments, including 0% and 15% capital gains thresholds).
• IRS, IR-2025-103: Tax inflation adjustments for tax year 2026 (Oct. 9, 2025).
• IRS, Publication 550, Investment Income and Expenses (wash sales, trade date rule).
• IRS, Revenue Ruling 2008-5 (wash sales involving IRAs and Roth IRAs).
• IRS, Topic No. 559, Net investment income tax (reviewed Sept. 24, 2026).
• IRS, Check your eligibility for the new enhanced deduction for seniors (Feb. 27, 2026).
• CNBC, Bond losses may offer investors a tax break. Here’s how tax-loss harvesting works (Oct. 2, 2026).
• Kiplinger, Cut Your Taxes With Tax-Loss Harvesting in 2026.
• Charles Schwab, Tax-Planning Strategies to Consider Before Year-End.
• BlackRock, Loss harvesting and wash sale rule considerations (PDF).
• Congress.gov, H.R. 9172; House Ways and Means, H.R. 10357 (markup Sept. 16, 2026).

Disclaimer: Dollar Lane publishes general U.S. personal-finance education for a USA audience. It is not tax, legal or investment advice. Dollar figures in the examples are simplified illustrations of federal income tax only and ignore state taxes. Tax rules and pending legislation can change; confirm details with IRS.gov or a qualified tax professional before selling any investment.