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Tax-loss harvesting involves selling investments that have experienced a loss and using those losses to offset any capital gains or up to $3,000 in ordinary income, thus reducing the investor's tax liability.

Identify Investments with Losses: Investors review their investment portfolio to identify holdings that have decreased in value since they were purchased.

Sell Investments at a Loss: Once the investments with losses are identified, the investor sells them to crystallize the losses.

Offset Capital Gains: The losses from the sold investments can then be used to offset any capital gains realized from other investments in the portfolio, thereby reducing the overall tax liability.

Tax Benefits: If the losses exceed the gains, investors can use up to $3,000 of the excess to offset ordinary income. Any remaining losses can be carried forward to future tax years.

Reinvest or Wait: After selling the investments at a loss, investors may choose to reinvest the proceeds in similar assets or wait for a designated period before repurchasing the same or similar investments to avoid violating the wash-sale rule, which disallows certain tax benefits if a similar investment is repurchased within 30 days.

It's important to note that tax-loss harvesting should be approached with careful consideration of an investor's overall financial strategy and tax situation. Additionally, it's advisable to consult with a tax professional or financial advisor to ensure that the strategy aligns with an individual's financial goals and tax circumstances. While tax-loss harvesting can be an effective tax planning tool, it's important to integrate it thoughtfully within an investor's broader investment strategy.