I think I'm missing something about tax loss harvesting. I understand how it works and all that, but I don't see the advantage. The reason being is that when you harvest the loss, you are simply resetting the basis lower, which means you have a higher future gain.

So, bird in the hand and all that, but is it actually worth it? Kitces has a blog post on this topic:

https://www.kitces.com/blog/evaluating-the-tax-deferral-and-tax-bracket-arbitrage-benefits-of-tax-loss-harvesting/

Following- I've always wondered about this. Maybe I'm just not getting it, but it seems like you're moving the goal posts and it isn't an oft-repeatable strategy. What am I missing?

Let's just go through a simple example. For the sake of argument I'll assume that you pay a flat 25% tax on all income.

You buy 100 shares at $20 each. The stock market crashes the next week and the per-share value goes down to $10. You sell the shares, getting $1,000 cash and booking a $1,000 capital loss on your taxes. At a 25% tax rate, this loss gives you an extra $250 to invest. You take that $1,250 and buy 125 shares of a very similar fund. Two years later the market has recovered and the shares are worth $25 each. You sell them and receive $3,125 cash. Subtract your $1,250 cost basis and you get a capital gain of $1,875. The tax on this would be $468.75, leaving you with

**$2,656.25 after taxes**.

What if you didn't harvest losses? You have 100 shares, with cost basis of $2,000, and you sell them for $2,500. You pay 25% tax on the $500 capital gain, leaving you with

**$2,375 after taxes**. You can see that even with consistent tax rates, harvesting that loss and reinvesting the tax savings results in more after-tax money at the end.

In real life, the tax rates

**aren't** consistent. The first $3,000 of capital losses counteracts your regular income at your regular marginal rate, while capital gains are taxed at a lower rate. Your tax bracket might also go down between now (during the accumulation phase) and later (when you're retired and want to convert your shares to cash). If, for example, you're in the 25% tax bracket while working and the 15% tax bracket (0% capital gains) while retired, you can see that the capital loss harvesting outperforms by even more than in the scenario above. Eliminate the capital gains tax and it becomes $3,125 against $2,500.