The strategy of selling investments at a loss to offset capital gains and reduce taxable income, then reinvesting the proceeds in a similar (but not identical) asset.
Tax-loss harvesting can add 0.5-1.5% annually to after-tax returns, making it one of the most valuable wealth-building strategies available. For example, if you have $10,000 in capital gains and $7,000 in capital losses, you only pay taxes on $3,000 of net gains. If losses exceed gains, you can deduct up to $3,000 against ordinary income, with the remainder carrying forward indefinitely. The key constraint is the wash-sale rule: you cannot buy a "substantially identical" security within 30 days before or after selling at a loss. Many robo-advisors automate this process, scanning portfolios daily for harvesting opportunities.