Markets fall, and a down position feels like nothing but bad news. Tax-loss harvesting is the practice of turning that paper loss into a usable tax benefit without necessarily changing your investment plan, and it is one of the few silver linings a decline actually offers.
When you sell an investment for less than you paid, you realize a capital loss. That loss can offset capital gains elsewhere in your portfolio and, beyond that, a limited amount of ordinary income each year, with the remainder carried forward to future years. Done deliberately, harvesting lets a temporary decline reduce a real tax bill, while you stay invested in the market by rotating into a similar but not identical holding.
The catch is the wash-sale rule. If you buy the same or a substantially identical security within 30 days before or after the sale, the IRS disallows the loss. The rule exists to stop people from claiming a loss while never really changing their position, and it is easy to trigger by accident: through automatic reinvestment, a purchase in another account, or a spouse's account. The loss is not gone forever in that case, but it is deferred, which defeats the point of harvesting it now.
Harvesting cleanly means selling the loss and, if you want to stay invested, buying something similar enough to keep your allocation but different enough not to be substantially identical, then waiting out the window before returning to the original if you wish. It also means watching every account, because the rule spans all of them. This is general information, not personalized tax or investment advice, and the definition of substantially identical has real nuance, so coordinate the actual trades with your tax advisor.
Harvest the loss. Just do not wash it away.