Author Topic: How do I tax-loss harvest (right now)  (Read 3445 times)

BlueHouse

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How do I tax-loss harvest (right now)
« on: August 23, 2015, 11:14:06 AM »
About a month ago, I sold off some stock mutual fund to pay down my mortgage. 
Since that time, I've been racking up some more money from income and had been planning to put more towards mortgage before I recast later this month, but the stocks seem to be on sale, and I'm wondering if I can reduce my tax burden on what I've already sold. 

If I sell off $50k of VTSAX, and buy $50k of [something else], is that beneficial to me?  My goal is to reduce my taxes and if I can help it, pay nothing on the $50k I've already sold

What do I buy to replace it?
How long do I have to wait to make the new purchase?
Do I have to have a check mailed to me and then send it back in or can I just move it to cash in the same vanguard account?  Can I sell and buy the new fund in the same day? 

Exactly what happens on my taxes due to a transaction like this?  assume it's $50k. 
Is there any income limit on claiming a loss?   I tend to hear from my accountant whenever I ask about some new scheme "you make too much" to be eligible for any return, but there seems to always be a way to offset a gain -- although I've never been able to benefit from that with my portfolio -- yet!  here's to hoping I can "beat the man" at something! 

Thanks for any help/advice in advance!

bacchi

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Re: How do I tax-loss harvest (right now)
« Reply #1 on: August 23, 2015, 11:31:17 AM »
You could sell VTSAX and buy..VFIAX?

If the replacement isn't "substantially identical," you can do it immediately with an exchange. Otherwise, you'll need to wait 31 days to re-purchase VTSAX.

On Schedule D, your losses and gains are added together to figure out the cap gains. There's no income limit.

Finally, you need to be careful about any VTSAX purchases elsewhere, such as in an IRA. For example, Vanguard's target funds hold VTSAX, which could trigger the wash sale and void any tax losses.

Nothlit

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Re: How do I tax-loss harvest (right now)
« Reply #2 on: August 23, 2015, 11:38:12 AM »
Also be careful of automatic dividend reinvestments. They can trigger the wash sale rule even if you weren't aware of it. And the wash sale rule applies to purchases made 30 days before OR after your loss sale (many people forget the "before" part).

More general info here.

BlueHouse

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Re: How do I tax-loss harvest (right now)
« Reply #3 on: August 24, 2015, 07:02:35 AM »
So I can't sell VTSAX and buy ANYTHING immediately because I had a 401k contribution to it earlier this month, right?  And the dividends part of it looks like I need to change all of my accounts to stop the auto dividend reinvestment so that I can be ready for this type of movement in the future. 

And according to your link, Nothlit, it seems I will get the benefit someday -- even if I screw up now -- by adjusting the cost basis.  But I'm definitley looking for some advantage this year, so I'll keep trying to figure out a way to play this out.

Thanks!  I appreciate the help!  I'll update when/if I make a plan or execute the plan. 

BlueHouse

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Re: How do I tax-loss harvest (right now)
« Reply #4 on: August 24, 2015, 09:11:51 AM »
Forgive me for being so dense, this is somewhat Greek to me.

It appears that I need to stay away from selling any VTSAX because of a contribution and/or dividend within the past 30 days in another account.
So now I'm leaning toward selling some VFIAX and exchanging it for more VTSAX.  I still have contributions going to VTSAX, but buying more within 30 days isn't the issue, correct?  It's once I sell something at a loss, I can't buy more of that same something in the time +/- 30 days (if I understand correctly).

So I've just changed automatic dividend and cap gains distributions to go to VTSAX from all other funds, so I shouldn't get a surprise dividend that falls under the wash-sale rule.

And now, the next bump is when I look under the gains for VFIAX, I have long term gains (positive, green) but short-term losses (red, negative).  Do I only sell the short term ones?  Once I get to this view and see gains/losses, it just doesn't seem as if my losses are that great compared to my gains over a long period of time.   Am I missing something, or do you actually have to have lost real money in order to benefit from tax-loss harvesting?

Another option I have is to sell VGENX.  There's a real loss there both short and long-term.  What would be the best fund to exchange if I want to sell off VGENX?  I've wanted to get rid of it anyway, but I feel like I'm so far in the hole with that one that I better just wait for prices to rebound, even if it takes 20 years.  How bad would it be if I sold VGENX and exchanged for VTSAX? 
Help!  I'm hopelessly lost!


bacchi

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Re: How do I tax-loss harvest (right now)
« Reply #5 on: August 25, 2015, 09:27:39 AM »
So now I'm leaning toward selling some VFIAX and exchanging it for more VTSAX.  I still have contributions going to VTSAX, but buying more within 30 days isn't the issue, correct?  It's once I sell something at a loss, I can't buy more of that same something in the time +/- 30 days (if I understand correctly).

Correct.

Quote
Once I get to this view and see gains/losses, it just doesn't seem as if my losses are that great compared to my gains over a long period of time.   Am I missing something, or do you actually have to have lost real money in order to benefit from tax-loss harvesting?

Yeah, it has to be a bad year (or years) to actually benefit a lot. Of course, you only need $3000 more losses than gains.

Quote
Another option I have is to sell VGENX.  There's a real loss there both short and long-term.  What would be the best fund to exchange if I want to sell off VGENX?  I've wanted to get rid of it anyway, but I feel like I'm so far in the hole with that one that I better just wait for prices to rebound, even if it takes 20 years.  How bad would it be if I sold VGENX and exchanged for VTSAX? 
Help!  I'm hopelessly lost!

This sounds like the best solution. Buy it again in January (post dividend/cap gains) if you want to keep it. Or buy VPU/VUIAX as a replacement?

Dicey

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Re: How do I tax-loss harvest (right now)
« Reply #6 on: August 25, 2015, 09:43:31 AM »
Is this really worth the trouble? Does anyone here do this consistently who can report good results? Being a buy-and-hold index funds type of investor, I do not understand this at all, nor am I sure I need to.

BlueHouse

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Re: How do I tax-loss harvest (right now)
« Reply #7 on: August 25, 2015, 03:41:19 PM »
This sounds like the best solution. Buy it again in January (post dividend/cap gains) if you want to keep it. Or buy VPU/VUIAX as a replacement?
Thank you bacchi.  It gets much more difficult when its your own money!

Is this really worth the trouble? Does anyone here do this consistently who can report good results? Being a buy-and-hold index funds type of investor, I do not understand this at all, nor am I sure I need to.
Yeah, wondering that myself.  starting to feel as if I'd be trying to time the market.  It's really nerve-wracking.  But I really don't want to pay more taxes than I have to.