Here's the first number tax-loss harvesters need know

Financial experts recommend starting with this number when calculating tax-loss harvesting.

In a down market, investors don't have many good options. But tax-loss harvesting, which lets you use losses to offset profits, may be a bright spot. Experts say that before you try, you need to know your full tax situation.

This is why: There is a 0% long-term capital gains tax bracket that not many people know about. This means that you might not have to pay taxes on all or part of your investment gains even if you don't use loss harvesting.

Andy Pratt, partner and director of investment strategy at Burney Company in Reston, Virginia, which was ranked No. 9 on CNBC's 2022 FA 100 list, said that the earnings thresholds are "actually pretty high."

For 2022, if you have a taxable income of $41,675 or less as a single filer or $83,350 or less as a married couple filing jointly, you may qualify for the 0% long-term capital gains rate.

You figure out your "taxable income" by taking the larger of your standard deductions or itemised deductions from your "adjusted gross income." Your "adjusted gross income" is your earnings minus deductions that are "above the line."

With the S&P 500 down more than 20% in 2022, there may be many chances to sell off assets that are losing value.

And if your realised investment losses are more than your realised investment profits, you can deduct up to $3,000 in losses from your regular income each year. You can also carry losses over $3,000 into the next year to offset income.

Dale Brown, board chair at Salem Investment Counselors in Winston-Salem, North Carolina, which ranked sixth on the FA 100 list, said, "In a bad year like this, there's nothing quite as nice as having the government share some of your pain."

But taking advantage of losses in the 0% tax bracket won't pay off because gains from investments aren't taxed. Most of the time, it's better to wait to use the strategy until earnings go above the 0% taxable income threshold. "You've wasted a loss," Brown said if that happens.

Pratt said, "When we do tax loss harvesting, we don't get rid of taxes." "You're just pushing taxes into the future," which may be more expensive in years when you make more money.

There might be a limit to how far investment losses can be carried forward.

Experts say that another reason not to throw away investment losses is that there may be limits to how much you can carry over to the next year, depending on where you live and how old you are.

You can carry losses forward on your federal taxes, but not on all state returns. This makes it harder to offset future gains, according to John Dahlin, director of tax at IFA Taxes, a division of Index Fund Advisors in Irvine, California, which ranked No. 66 on the FA 100 list.

Pratt said that older investors should think about how long they are likely to live based on the size of their losses. He said, "That possible tax benefit will just go away when the investor dies."