What is tax loss harvesting?

When an investor closes a position at a loss, it may reduce the amount of taxes they may need to pay. This is because capital gains are measured by the net total profits/loss of all their investing activities. In other words, trading losses may be deducted from an investor’s net capital gains tax liability.

Sometimes investors will review their portfolio specifically for open loss-making positions and sell them to book the loss. Or they may sell a particular position that has lower gains than others for that asset. This often happens at the end of the year as investors may be tax planning.

Note: Every country has specific rules as to what assets you can claim losses on and how you may claim losses.  The rules are generally complicated.  As such, this is provided for informational purposes only. etoro does not provide tax or legal advice. You should consult with a tax or legal professional to address your particular situation.