Author Topic: Tax loss harvesting and a mutual fund you were planning to sell anyway  (Read 1890 times)

jeromedawg

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Hey all,

I was wondering if "tax loss harvesting" would even apply in the case of a fund that I'm looking to get rid of anyway. If the fund is currently losing, and I am intending to get rid of it for good, should I just wait until it gets back to the positive before letting it go? Or is there any point in practicing tax loss harvesting (if that even applies) in a scenario such as this?


Thanks

seattlecyclone

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Re: Tax loss harvesting and a mutual fund you were planning to sell anyway
« Reply #1 on: November 26, 2014, 04:11:02 PM »
If you want to sell it anyway and it's currently worth less than you paid for it, go ahead and sell it now! You'll get to reinvest your money into something better and save money on your taxes to boot. What's the downside?

jeromedawg

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Re: Tax loss harvesting and a mutual fund you were planning to sell anyway
« Reply #2 on: November 26, 2014, 04:27:03 PM »
If you want to sell it anyway and it's currently worth less than you paid for it, go ahead and sell it now! You'll get to reinvest your money into something better and save money on your taxes to boot. What's the downside?

Makes sense - is there any reason *not* to sell a fund that's losing now? It's not losing too much right now (it's about $142 under, or -2%"). I guess the logic is that you can claim it as a loss (deduction) on taxes and then invest it in something that will presumably have better growth to "make up" for that 2% loss?

If I were to wait to sell it though, and let's say it went positive 2% when I decided to get rid of it, I'd have to pay the capital gains taxes - I guess at that point, I'd have to figure out how much the potential capital gains tax would be compared to the 2% I lost on the investment. I suppose it's likelier that the capital gains tax is going to be much higher than the $142 that I've currently lost if I were to wait to sell the fund once it's positive?

seattlecyclone

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Re: Tax loss harvesting and a mutual fund you were planning to sell anyway
« Reply #3 on: November 26, 2014, 04:40:55 PM »
Makes sense - is there any reason *not* to sell a fund that's losing now? It's not losing too much right now (it's about $142 under, or -2%"). I guess the logic is that you can claim it as a loss (deduction) on taxes and then invest it in something that will presumably have better growth to "make up" for that 2% loss?

You should invest in a fund or funds that you expect will get you the best overall return over time. You said you want to sell this fund anyway, which indicates you no longer believe it is the best place for your money. Option A is to sell right now and use the proceeds to buy a better fund. Option B is to wait until your shares are ahead of what you paid for them and make the trade then. With Option A, you get to claim a tax deduction and you get your money invested in the better fund sooner. With Option B, you have to pay capital gains taxes, but the bigger thing is that if your new fund outperforms your current fund between now and then (why would you want to switch in the first place unless you expect this to happen?), you'll end up owning fewer shares of the new fund than if you sold right now. Waiting seems like a lose-lose to me.

jeromedawg

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Re: Tax loss harvesting and a mutual fund you were planning to sell anyway
« Reply #4 on: November 26, 2014, 05:07:47 PM »
Doh, I just realized I posted this in the wrong forum... meant to post up in Investor Alley. Anyway, thanks for the insight! I think I'll go ahead and sell the position now as suggested. That does make sense and another deduction wouldn't hurt. I plan to reinvest in the Spartan Total Market or S&P 500 most likely.