Author Topic: Tax Gain Harvesting  (Read 566 times)

retired?

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Tax Gain Harvesting
« on: September 30, 2017, 11:35:23 AM »
I know about 'wash sale' rules when there is a loss.  I figured there were similar rules for the case of a gain.  I've only recently been in the 10-15% bracket and can benefit from adjusting my cost basis upward by selling and then rebuying.

Is this correct?

http://www.madfientist.com/tax-gain-harvesting/

says there are no such rules.

Mine is a Vanguard account.  Do mutual fund firms allow this sort of quick turn-around buying/selling?  I recall some have 30-60 day rules to avoid to much "trading" in their accounts.

MDM

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Re: Tax Gain Harvesting
« Reply #1 on: September 30, 2017, 11:44:40 AM »
I know about 'wash sale' rules when there is a loss.  I figured there were similar rules for the case of a gain.  I've only recently been in the 10-15% bracket and can benefit from adjusting my cost basis upward by selling and then rebuying.

Is this correct?
Yes.

Quote
Mine is a Vanguard account.  Do mutual fund firms allow this sort of quick turn-around buying/selling?  I recall some have 30-60 day rules to avoid to much "trading" in their accounts.
Check the specific broker and fund rules.  While the IRS won't charge you for TGH, the brokerage might.

Telecaster

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Re: Tax Gain Harvesting
« Reply #2 on: September 30, 2017, 11:48:43 AM »
I know Fidelity has some rules about this.  I think they call them roundup sales or something.  I'm pretty sure if you only did it once a month or so it would be fine.  Worst case, you could buy something very similar like you would to avoid wash sales.    Like sell S&P500 index and buy Total Stock Market Index.  But I suspect you wouldn't be harvesting gains often enough that you would be in violation of the trading rules. 

retired?

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Re: Tax Gain Harvesting
« Reply #3 on: September 30, 2017, 12:05:50 PM »
I know Fidelity has some rules about this.  I think they call them roundup sales or something.  I'm pretty sure if you only did it once a month or so it would be fine.  Worst case, you could buy something very similar like you would to avoid wash sales.    Like sell S&P500 index and buy Total Stock Market Index.  But I suspect you wouldn't be harvesting gains often enough that you would be in violation of the trading rules.

Great thing this is......I'm surprised, but happy about it.

I read the comments section of MadFientist article and there were some suggestions to get around the fund rules....use an ETF, for example.  One person does it via 'automatic investing'.....sells fund, then sets up auto investing ( for perhaps a large amount) and cancels after the first auto investing....says he misses 3 days in the market.

I would only be doing this once a year (per investment) solely for the purpose of raising cost basis.

secondcor521

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Re: Tax Gain Harvesting
« Reply #4 on: September 30, 2017, 12:56:07 PM »
I did exactly what you are describing and for the reason you describe at Vanguard in October last year.

I was able to sell the total stock market index fund on 10/5 and buy the 500 index fund on 10/7.  I think the reason for the two day delay was that I had to wait for the sell to settle before making the buy.

There were no fees from Vanguard either to sell or to buy.

The frequent trading rules that you are referring to are only if you try to buy and sell the same Vanguard fund (and maybe ETF, I don't really know since I don't invest in those).  So if you're doing it once a year and switching between two similar funds then you would not be affected.

So I was able to make my transaction as described above just fine, but I was (probably, I don't really check) prohibited from *buying* back into the total stock market fund for a month or whatever.  But I would have been able to *sell* more of the TSM or buy more of the 500 index within that time frame.

So overall, yes, it will work exactly the way you are surprised to hear that it does.  At least as long as the tax laws remain the same, which as you know is never guaranteed and things are up in the air a bit in that regard these days.  Although my personal read on the situation is that the strategy will still be sound even if / after they pass any tax law in the near future.
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Acastus

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Re: Tax Gain Harvesting
« Reply #5 on: October 04, 2017, 10:44:58 AM »
You cannot buy and sell the exact same security, or it is subject to wash rules. You can buy very similar securities, as noted by secondcor521. At Vanguard specifically, investor, admiral, and ETF are different classes of the same thing, so you would need to change fund names. You could switch from Wellington to Balanced, or from S&P500 to Large Cap, and be safe. The basket of stocks is just different enough to be different, but the general class of investment is essentially the same. An equivalent to Total stock is 65% large, 25% mid cap, 10% small cap, so switching to just S&P500 changes your assets a bit.

MDM

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Re: Tax Gain Harvesting
« Reply #6 on: October 04, 2017, 11:12:41 AM »
You cannot buy and sell the exact same security, or it is subject to wash rules.
Correct if selling at a loss.  For the OP's question about gains, wash rules are irrelevant.

Indexer

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Re: Tax Gain Harvesting
« Reply #7 on: October 04, 2017, 10:08:33 PM »
Quote
Mine is a Vanguard account.  Do mutual fund firms allow this sort of quick turn-around buying/selling?  I recall some have 30-60 day rules to avoid to much "trading" in their accounts.

Vanguard mutual funds do have rules about selling and then rebuying. You have to wait 30 days.

However, the ETFs don't have this rule. If you run into this problem with a mutual fund, just switch to the ETF. VTSAX = VTI. VTIAX = VXUS.

Related, the ETFs are easier to switch cost basis preferences than the mutual funds(online VS paperwork). If you plan on selling individual lots as opposed to the whole position this is easier to accomplish with the ETF.

seattlecyclone

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Re: Tax Gain Harvesting
« Reply #8 on: October 06, 2017, 10:06:58 AM »
Yep, wash sale rules only apply to selling at a loss.

Be aware that while the federal income tax rate on some amount of capital gains is zero, this income still does count toward your AGI and could result in lower ACA subsidies or other things that could cause the effective tax rate on this income to be higher than zero. Also most states have a non-zero tax rate on this income even if the feds won't tax you for it.
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Acastus

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Re: Tax Gain Harvesting
« Reply #9 on: October 06, 2017, 12:35:27 PM »
Sorry, my mistake.