What is the primary purpose of tax-loss harvesting?

• A. Sell losers to realize tax losses to offset gains.
• B. Increase current taxable income by recognizing gains.
• C. Delay harvesting until the end of the year to avoid wash-sale rules.
• D. Ignore wash-sale rules since they don't apply to gains.

Answer: (A)

Tax-loss harvesting centers on using investment losses to reduce taxes on gains. When you sell a security at a loss, that loss can offset realized capital gains dollar-for-dollar. If losses exceed gains, you can deduct up to $3,000 of ordinary income per year and carry the rest forward to future years. This is the primary purpose: to realize tax losses to offset gains and lower overall tax liability, while maintaining exposure by replacing sold assets in a tax-efficient way. Wash-sale rules matter: if you repurchase a substantially identical security within 30 days before or after the sale, the deduction is disallowed, which is why timing and replacement choices are important. The other options misstate the goal or ignore these rules: increasing taxable income by recognizing gains isn’t harvesting, delaying to year-end doesn’t change the fundamental mechanism, and ignoring wash-sale rules would undermine the intended tax benefit.