Author Topic: How to sell off funds for the purpose of Tax Loss Harvesting?  (Read 1041 times)

jeromedawg

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How to sell off funds for the purpose of Tax Loss Harvesting?
« on: December 05, 2018, 01:09:25 AM »
Hey all,

Curious but if I want to sell a portion of funds for TLH, out of this list on Fidelity, what should I choose before actually selling? Or what are your practical methods for figuring out how much to sell and what not? Do you just dig through your transaction history for a given ticker and compare the current price versus price you bought for and as long as it's lower, you sell those # of shares that you had originally purchased at the time when it was higher? If so, would you want to choose LIFO, High Cost or High Cost Short Term?

First In, First Out (FIFO)   Shares with the oldest acquisition date are sold first, regardless of cost basis.

Intraday First In, First Out   Shares purchased today are sold first. Once all lots purchased today have been sold, the disposal method reverts to First In First Out (FIFO).

Last In, First Out (LIFO)   Shares with the most recent acquisition date are sold first, regardless of cost basis.

High-Cost   Shares with the greatest cost basis are sold first. If more than one lot has the same price, the lot with the earliest acquisition date is sold first.

High-Cost Long-Term   Shares with a long-term holding period are sold first, beginning with those with the greatest cost basis. Then, shares with a short-term holding period are sold, beginning with those with the greatest cost basis.

High-Cost Short-Term   Shares with a short-term holding period are sold first, beginning with those with the greatest cost basis. Then, shares with a long-term holding period are sold, beginning with those with the greatest cost basis.

Low-Cost   Shares with the lowest cost basis are sold first, regardless of the holding period.

Low-Cost Long-Term   Shares with a long-term holding period are sold first, beginning with those with the lowest cost basis. Then, shares with a short-term holding period are sold, beginning with those with the lowest cost basis.

Low-Cost Short-Term   Shares with a short-term holding period are sold first, beginning with those with the lowest cost basis. Then, shares with a long-term holding period are sold, beginning with those with the lowest cost basis.

Tax-Sensitive   Shares with the lowest tax cost per share are sold first, starting with shares that have a loss (from greatest to smallest loss).

Tax-Sensitive Short-Term   A global rate (35% short-term and 15% long-term) is used to calculate the tax liability (per share) of each lot.
Short-term lots with the lowest tax cost per share are sold first, starting with shares that have a loss (from greatest to smallest loss). Once all short-term shares are sold, any long-term lots are sold, starting with shares that have a loss (from greatest to smallest loss).

MustacheAndaHalf

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #1 on: December 05, 2018, 01:48:21 AM »
Does Fidelity let you select the shares by hand?  Each of those seems like a strategy that won't work in all situations.

Normally you want the largest capital loss you can find.  But if you're within a "wash sale" window, you want the smallest positive gain you can find (a wash sale disallows losses).

Vanguard calls this "specific lot identification", where you select from a list.

terran

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #2 on: December 05, 2018, 06:16:54 AM »
Does Fidelity let you select the shares by hand?  Each of those seems like a strategy that won't work in all situations.

Yes, they do. From the action dropdown (buy/sell/etc) you select specific shares and it will take you to another page to enter the sale.

jeromedawg

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #3 on: December 05, 2018, 08:28:53 AM »
Does Fidelity let you select the shares by hand?  Each of those seems like a strategy that won't work in all situations.

Yes, they do. From the action dropdown (buy/sell/etc) you select specific shares and it will take you to another page to enter the sale.

Thanks! I just found it - it's not the most straightforward to get to but there's a dedicated page. I did see the dropdown but I couldn't find it for ETFs...weird.

One other question with all this: is it possible to tax loss harvest and then donate to a charitable organization and claim both the loss AND donation? Is there any reason not to do this if I was wanting to TLH anyway (of course maintaining the idea that I would eventually want to re-buy the original funds I sold)?

Boofinator

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #4 on: December 05, 2018, 08:28:59 AM »
My two-step process:

1) As long as you're outside the wash sale window (30 days) and inside the qualified dividends window (60 days), sell every specific lot of shares with a loss.

2) If you're outside the wash sale window but not inside the qualified dividends window, don't tax loss harvest yet unless your losses-to-capital ratio for the lots sold is over a certain threshold. I use 1% at a minimum (if I haven't hit short-term max losses for the year), but preferably much higher. If not there yet, I try to be patient for the 60 day window.

terran

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #5 on: December 05, 2018, 08:32:14 AM »
Does Fidelity let you select the shares by hand?  Each of those seems like a strategy that won't work in all situations.

Yes, they do. From the action dropdown (buy/sell/etc) you select specific shares and it will take you to another page to enter the sale.

Thanks! I just found it - it's not the most straightforward to get to but there's a dedicated page. I did see the dropdown but I couldn't find it for ETFs...weird.

One other question with all this: is it possible to tax loss harvest and then donate to a charitable organization and claim both the loss AND donation? Is there any reason not to do this if I was wanting to TLH anyway (of course maintaining the idea that I would eventually want to re-buy the original funds I sold)?

In that case I would just donate the cash. The only advantage to donating shares is that you get a deduction for the full value of the shares, but you don't pay tax on the capital gains. You could donate other shares that have appreciated if you have them.

jeromedawg

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #6 on: December 05, 2018, 09:32:29 AM »
Does Fidelity let you select the shares by hand?  Each of those seems like a strategy that won't work in all situations.

Yes, they do. From the action dropdown (buy/sell/etc) you select specific shares and it will take you to another page to enter the sale.

Thanks! I just found it - it's not the most straightforward to get to but there's a dedicated page. I did see the dropdown but I couldn't find it for ETFs...weird.

One other question with all this: is it possible to tax loss harvest and then donate to a charitable organization and claim both the loss AND donation? Is there any reason not to do this if I was wanting to TLH anyway (of course maintaining the idea that I would eventually want to re-buy the original funds I sold)?

In that case I would just donate the cash. The only advantage to donating shares is that you get a deduction for the full value of the shares, but you don't pay tax on the capital gains. You could donate other shares that have appreciated if you have them.


Thanks. Sorry I wasn't clear - I meant to take the cash proceeds from the TLH sale and donate that... as far as the cash you get from the TLH, typically it's used to re-buy the same fund after the wash sale period but I was wondering if there's any advantage in donating that cash to charity *over* donating a different stock or fund that has appreciated. But yes, if we were talking about donating stocks/funds, which I was planning to do with some stocks I have but just never got around to it, it sounds like donating stocks/funds that have decreased in value isn't a very good idea and that you want to donate stocks that have appreciated in value.

I guess the other consideration for donations as well is to donate dividends right?
« Last Edit: December 05, 2018, 09:35:05 AM by jeromedawg »

seattlecyclone

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #7 on: December 05, 2018, 03:19:27 PM »
Donating appreciated shares is a great option. Let's take a look at an example.

Suppose you have Company A shares worth $1,000 today, up $500 since you bought them (more than a year ago).
Suppose you have some Company B shares worth $1,000 today, down $200 since you bought them (more than a year ago).
Suppose you want to donate $1,000 to a charity.
Suppose you're in the 22% income tax/15% capital gains tax bracket, and you're already itemizing deductions.

As it stands now you have assets with a $2,000 current value, and a $300 net capital gain that you would have to pay tax on if you sold all the shares.

1) If you donate cash (from whatever source), you get to realize a $1,000 itemized deduction (worth $220 on your taxes).
2) If you donate the Company A shares, you get to realize a $1,000 itemized deduction (worth $220 on your taxes), and you also get rid of $500 in unrealized gains (worth $75).
3) If you donate the Company B shares, you get to realize a $1,000 itemized deduction (worth $220 on your taxes), but you don't get to deduct your capital loss.
4) If you sell the Company B shares, you get to realize a $200 capital loss (worth $44 on your taxes).

You can do more than one of these things in the same year. The best option overall is likely to be a combination of (2) and (4). Donating appreciated shares is more tax-advantaged than other types of donations, and harvesting losses is also often to your advantage. Reinvest the cash resulting from harvesting your losses and deducting your donation.

jeromedawg

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #8 on: December 05, 2018, 04:09:41 PM »
Donating appreciated shares is a great option. Let's take a look at an example.

Suppose you have Company A shares worth $1,000 today, up $500 since you bought them (more than a year ago).
Suppose you have some Company B shares worth $1,000 today, down $200 since you bought them (more than a year ago).
Suppose you want to donate $1,000 to a charity.
Suppose you're in the 22% income tax/15% capital gains tax bracket, and you're already itemizing deductions.

As it stands now you have assets with a $2,000 current value, and a $300 net capital gain that you would have to pay tax on if you sold all the shares.

1) If you donate cash (from whatever source), you get to realize a $1,000 itemized deduction (worth $220 on your taxes).
2) If you donate the Company A shares, you get to realize a $1,000 itemized deduction (worth $220 on your taxes), and you also get rid of $500 in unrealized gains (worth $75).
3) If you donate the Company B shares, you get to realize a $1,000 itemized deduction (worth $220 on your taxes), but you don't get to deduct your capital loss.
4) If you sell the Company B shares, you get to realize a $200 capital loss (worth $44 on your taxes).

You can do more than one of these things in the same year. The best option overall is likely to be a combination of (2) and (4). Donating appreciated shares is more tax-advantaged than other types of donations, and harvesting losses is also often to your advantage. Reinvest the cash resulting from harvesting your losses and deducting your donation.

Great examples! I pretty much just did 2 and 4 by initiating a donation of appreciated shares of stocks I want to reduce my position in. I also sold some lots of shares/ETFs with short-term total losses I had purchased earlier on my taxable account. I've come to the realization that if I'm planning to donate to charity, I should opt to donate stock whenever and wherever possible.

GUNDERSON

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #9 on: December 06, 2018, 09:19:36 AM »
If I bought VTI at a bunch of different times over the course of a couple of months, I'm assuming I have to now sell ALL those shares to avoid triggering a wash sale?

MustacheAndaHalf

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #10 on: December 06, 2018, 09:55:44 AM »
If I bought VTI at a bunch of different times over the course of a couple of months, I'm assuming I have to now sell ALL those shares to avoid triggering a wash sale?
Not sure how your question fits in this thread, but you don't trigger a wash sale until you sell at a loss, and within 30 days (before or after the sale), you buy / have bought "substantially identical" assets.

powskier

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #11 on: December 06, 2018, 08:21:32 PM »
Ameritrade has a nice little drop down menu and "tax loss harvest " as an option when you sell.

terran

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #12 on: December 06, 2018, 08:29:51 PM »
If I bought VTI at a bunch of different times over the course of a couple of months, I'm assuming I have to now sell ALL those shares to avoid triggering a wash sale?
Not sure how your question fits in this thread, but you don't trigger a wash sale until you sell at a loss, and within 30 days (before or after the sale), you buy / have bought "substantially identical" assets.

Which means you do need to be sure to sell all lots bought within the last 30 days.

MustacheAndaHalf

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #13 on: December 06, 2018, 08:40:49 PM »
If I bought VTI at a bunch of different times over the course of a couple of months, I'm assuming I have to now sell ALL those shares to avoid triggering a wash sale?
Not sure how your question fits in this thread, but you don't trigger a wash sale until you sell at a loss, and within 30 days (before or after the sale), you buy / have bought "substantially identical" assets.
Which means you do need to be sure to sell all lots bought within the last 30 days.
Is your advice to deliberately trigger a wash sale?  Some lots bought in the past 30 days will probably be at a loss (especially after Tues/Thurs), so you will be triggering wash sales by selling everything bought in the past 30 days.  That doesn't seem like a good idea to me.

terran

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #14 on: December 06, 2018, 09:04:37 PM »
If I bought VTI at a bunch of different times over the course of a couple of months, I'm assuming I have to now sell ALL those shares to avoid triggering a wash sale?
Not sure how your question fits in this thread, but you don't trigger a wash sale until you sell at a loss, and within 30 days (before or after the sale), you buy / have bought "substantially identical" assets.
Which means you do need to be sure to sell all lots bought within the last 30 days.
Is your advice to deliberately trigger a wash sale?  Some lots bought in the past 30 days will probably be at a loss (especially after Tues/Thurs), so you will be triggering wash sales by selling everything bought in the past 30 days.  That doesn't seem like a good idea to me.

How would that trigger a wash sale? If you buy/bought something that's substantially identical within 30 days of the sale at a loss and don't sell it then you have a wash sale. If you sell everything you bought within 30 days then you don't have a wash sale.

GUNDERSON

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #15 on: December 07, 2018, 12:13:17 AM »
Thanks, that's helpful.

Boofinator

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #16 on: December 07, 2018, 09:40:22 AM »
If I bought VTI at a bunch of different times over the course of a couple of months, I'm assuming I have to now sell ALL those shares to avoid triggering a wash sale?
Not sure how your question fits in this thread, but you don't trigger a wash sale until you sell at a loss, and within 30 days (before or after the sale), you buy / have bought "substantially identical" assets.
Which means you do need to be sure to sell all lots bought within the last 30 days.
Is your advice to deliberately trigger a wash sale?  Some lots bought in the past 30 days will probably be at a loss (especially after Tues/Thurs), so you will be triggering wash sales by selling everything bought in the past 30 days.  That doesn't seem like a good idea to me.

How would that trigger a wash sale? If you buy/bought something that's substantially identical within 30 days of the sale at a loss and don't sell it then you have a wash sale. If you sell everything you bought within 30 days then you don't have a wash sale.

This is confusing advice (at least to me). Here's clear advice from the professionals (https://www.irs.gov/publications/p550#en_US_2017_publink100010601):

You cannot deduct losses from sales or trades of stock or securities in a wash sale unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities.

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

Buy substantially identical stock or securities,
Acquire substantially identical stock or securities in a fully taxable trade,
Acquire a contract or option to buy substantially identical stock or securities, or
Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

seattlecyclone

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #17 on: December 07, 2018, 02:37:36 PM »
How would that trigger a wash sale? If you buy/bought something that's substantially identical within 30 days of the sale at a loss and don't sell it then you have a wash sale. If you sell everything you bought within 30 days then you don't have a wash sale.

Kind of. If you sell shares for a loss and you have also purchased shares of that same fund within the past 30 days, you technically have a wash sale whether you sell those recently-purchased shares or not. The loss gets added to the basis of the replacement shares.* This lets you claim credit for that loss when you eventually sell those shares. If you sell the replacement shares on the same day, and those shares were sold as a loss (more likely now that you added to the cost basis for those shares), you then need to look back to 30 days before when you bought the replacement shares to make sure that there isn't another wash sale from that lot. If you have your brokerage account set to invest money automatically on a regular basis, the loss could propagate back for some time.

* There's only a wash sale for the portion of the shares up to the value of the replacement shares. If you sell 100 shares for a loss today and happen to buy 1 share tomorrow, you still get to recognize the loss for 99 shares, and the loss on 1 share gets added to the basis of the new share.

MustacheAndaHalf

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #18 on: December 07, 2018, 11:05:21 PM »
terran - see the definition above from the IRS, which is not the definition you're using.

Here's two examples of wash sales:

On Monday you buy VTI.  It drops in value.  On Friday you sell it at a loss.  That Friday sale is a "wash sale", and you cannot benefit on your taxes from this sale.

You've held VTI for 2 months, but at a loss, so you sell VTI on Monday.  Seeing the market drop on Thursday, you buy it again.  Even though the purchase  after your earlier sale (3 days after), you still have a wash sale, and you can't benefit on your taxes from the earlier sale.

terran

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #19 on: December 08, 2018, 06:22:33 AM »
On Monday you buy VTI.  It drops in value.  On Friday you sell it at a loss.  That Friday sale is a "wash sale", and you cannot benefit on your taxes from this sale.

So you're saying you can't sell anything at a loss that you've bought within the last 30 days? I really don't think that's right. If you're saying you can't sell other shares of VTI at a loss while not selling the shares you bought on Monday then I'd agree with you.

You've held VTI for 2 months, but at a loss, so you sell VTI on Monday.  Seeing the market drop on Thursday, you buy it again.  Even though the purchase  after your earlier sale (3 days after), you still have a wash sale, and you can't benefit on your taxes from the earlier sale.

Agreed. That's the textbook definition of a wash sale.

jacoavluha

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #20 on: December 08, 2018, 07:35:18 AM »
To understand wash sales I find it helpful to understand the concept of replacement shares. To have a wash sale, you need to own replacement shares.

So, one way to always avoid a wash sale is to sell your entire holding. Even if you have purchased the same security within the wash sale window, by selling all shares, you donít have replacement shares, and you donít have a wash sale. As long as you donít purchase more of the same security in the 30 days after the sale. If you did, these would be replacement shares, and you would have a wash sale.

If you donít want to sell all your shares, you can simply sell all shares with a loss, and also any shares purchased in the prior 30 days, whether they have a loss or gain. And be sure not to purchase more in the following 30 days, including shares purchased through dividend reinvestment. If you follow  this, again you have no replacement shares, and therefore no wash sale.

A further consideration is that replacement shares donít have to be in the same account. If you sell VTI in your taxable account at a loss, but purchase replacement shares in your IRA, then you have a wash sale.

Boofinator

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #21 on: December 08, 2018, 09:47:31 AM »
Lots of confusion for a topic that isn't too difficult to understand. seattlecyclone goes into the more technical details and is absolutely correct; MustacheandaHalf gives two excellent examples, that show the general simplicity of the rule.

terran and jacoavluha are incorrect in this matter.

On Monday you buy VTI.  It drops in value.  On Friday you sell it at a loss.  That Friday sale is a "wash sale", and you cannot benefit on your taxes from this sale.

So you're saying you can't sell anything at a loss that you've bought within the last 30 days? I really don't think that's right. If you're saying you can't sell other shares of VTI at a loss while not selling the shares you bought on Monday then I'd agree with you.

That is correct, you cannot sell anything at a loss that you've bought within the last 30 days and avoid a wash sale.

To understand wash sales I find it helpful to understand the concept of replacement shares. To have a wash sale, you need to own replacement shares.

So, one way to always avoid a wash sale is to sell your entire holding. Even if you have purchased the same security within the wash sale window, by selling all shares, you don’t have replacement shares, and you don’t have a wash sale. As long as you don’t purchase more of the same security in the 30 days after the sale. If you did, these would be replacement shares, and you would have a wash sale.

If you don’t want to sell all your shares, you can simply sell all shares with a loss, and also any shares purchased in the prior 30 days, whether they have a loss or gain. And be sure not to purchase more in the following 30 days, including shares purchased through dividend reinvestment. If you follow  this, again you have no replacement shares, and therefore no wash sale.

Again, this is incorrect. The IRS rule is very straightforward: if you buy the substantially same security within the 61-day wash window (30 days before, 30 days after, and the same day), you cannot deduct any losses from the securities you sell.

Bottom line, if you sell shares for a loss, just make sure you don't do so within the wash sale window if you want to deduct the losses. To avoid the wash sale window means you couldn't have purchased substantially similar stock in the previous 30 days, and you can't purchasing substantially similar stock in the next 30 days.

jacoavluha

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #22 on: December 08, 2018, 10:47:48 AM »
no disrespect, but you are incorrect. You previously quoted pub 550. But your quote is incomplete with regards the applicable language. Per Pub 550:

Wash Sales
You cannot deduct losses from sales or trades of stock or securities in a wash sale unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities.

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,
2. Acquire substantially identical stock or securities in a fully taxable trade,
3. Acquire a contract or option to buy substantially identical stock or securities, or
4. Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock
or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.


The important section in our case is the final one. Because in the instance of selling the entirety of your holding, there are no remaining or new stock or securities on which to adjust the basis. That is to say, any replacement shares are sold. So whether there is a wash sale adjustment to basis or not, the net result is that your tax loss is realized and allowed to the full extent.

Here is an excellent resource to learn more: https://fairmark.com/investment-taxation/capital-gain/wash/  and  https://fairmark.com/investment-taxation/capital-gain/wash/wash-sales-and-replacement-stock/

terran

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #23 on: December 08, 2018, 12:18:04 PM »
Lots of confusion for a topic that isn't too difficult to understand.

This is true. While I'm open to having my mind changed (with sources, please), to the best of my knowledge, the rest of your post it not.

For a plain english explanation please see https://finance.zacks.com/30-day-rule-buying-selling-stock-2065.html which says "You can buy shares and sell them a week later for a tax-deductible loss because the initial purchase was not intended to replace shares already owned or sold."

@jacoavluha's links are also good explanations.

Boofinator

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #24 on: December 10, 2018, 09:06:02 AM »
Thanks @jacoavluha and @terran for enlightening me, it makes sense now. For my purposes, I will probably keep to the ease of just avoiding the 30-day window before and after, but it is interesting to note other options exist.

Out of curiosity, have either of you actually deducted losses using this method? Did it go without a hitch?

jacoavluha

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #25 on: December 10, 2018, 09:21:34 AM »
Thanks @jacoavluha and @terran for enlightening me, it makes sense now. For my purposes, I will probably keep to the ease of just avoiding the 30-day window before and after, but it is interesting to note other options exist.

Out of curiosity, have either of you actually deducted losses using this method? Did it go without a hitch?

I would argue that it's actually easier to not worry about counting days, if you're just going to sell your entire holding and exchange for a tax loss partner, such as total market fund -> S&P 500 fund. But fully avoiding the wash sale window is fine too.

Perhaps the issue you have to worry about the most is holding identical funds in IRAs and taxable, and avoiding purchasing replacement shares in the IRA, perhaps inadvertently through dividend reinvestment. This is a bigger deal because in this type of wash sale, you never get the future benefit of the disallowed loss, as you would in a taxable account. Because basis is irrelevant in the IRA. There is no adjustment to basis on the replacement shares in the IRA, as there would be on replacement shares held in a taxable account.

Yes I've tax loss harvested in this manner and not had wash sale issues. Most recently, have harvested lots of losses in international funds, so frequently so that I ended up in 4th order tax loss harvesting partners to avoid replacement shares and short term trading fees. VXUS -> IXUS -> VEA + VWO -> VT, now finally back to VXUS.

 I've also previously had robo advisor tax loss harvesting result in wash sales that I had to sort through and account for on my tax return, and doing so really helps you learn about wash sales.

terran

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #26 on: December 10, 2018, 10:47:27 AM »
Thanks @jacoavluha and @terran for enlightening me, it makes sense now. For my purposes, I will probably keep to the ease of just avoiding the 30-day window before and after, but it is interesting to note other options exist.

Out of curiosity, have either of you actually deducted losses using this method? Did it go without a hitch?

I would argue that it's actually easier to not worry about counting days, if you're just going to sell your entire holding and exchange for a tax loss partner, such as total market fund -> S&P 500 fund. But fully avoiding the wash sale window is fine too.

Agreed. For the tax loss harvesting I've done I've just sold the whole position. Some of the best tax loss harvesting can often happen within 30 days of purchase since there hasn't been time to gain before a loss, so no sense just not tax loss harvesting anything you've bought in the last 30 days.

MustacheAndaHalf

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #27 on: December 12, 2018, 08:46:31 AM »
Some of the best tax loss harvesting can often happen within 30 days of purchase since there hasn't been time to gain before a loss, so no sense just not tax loss harvesting anything you've bought in the last 30 days.
You cannot tax loss harvest within 30 days of purchase.  Again, that's a wash sale.

"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
Buy substantially identical stock or securities,"
https://taxmap.irs.gov/taxmap/pubs/p550-026.htm#TXMP212cbd13

jacoavluha

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #28 on: December 12, 2018, 09:06:38 AM »
Read my posts above. Including the reference to the language of Pub 550 which youíve quoted incompletely, leaving out the important subsequent language about basis adjustment on replacement shares.

terran

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #29 on: December 12, 2018, 10:38:22 AM »
Some of the best tax loss harvesting can often happen within 30 days of purchase since there hasn't been time to gain before a loss, so no sense just not tax loss harvesting anything you've bought in the last 30 days.
You cannot tax loss harvest within 30 days of purchase.  Again, that's a wash sale.

"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
Buy substantially identical stock or securities,"
https://taxmap.irs.gov/taxmap/pubs/p550-026.htm#TXMP212cbd13

Again, you're wrong. Read the articles that both @jacoavluha and I have posted.

Boofinator

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Re: How to sell off funds for the purpose of Tax Loss Harvesting?
« Reply #30 on: December 12, 2018, 10:47:16 AM »
Some of the best tax loss harvesting can often happen within 30 days of purchase since there hasn't been time to gain before a loss, so no sense just not tax loss harvesting anything you've bought in the last 30 days.
You cannot tax loss harvest within 30 days of purchase.  Again, that's a wash sale.

"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
Buy substantially identical stock or securities,"
https://taxmap.irs.gov/taxmap/pubs/p550-026.htm#TXMP212cbd13

The IRS makes this super confusing due to their choice of wording. That being said, the definition of a "wash sale" is one that keeps the same investments but realizes a capital loss. So if you buy new shares than immediately sell old shares as a loss, you've "washed" the old shares to collect the capital losses. Likewise, if you sell old shares for a loss than immediately buy new shares, you're again "washing" the shares. Note that the new shares are functioning as "replacement shares" for the old shares in both cases. If you buy shares then immediately sell them for a loss, you don't have "replacement shares" for this lot, and hence it is not a wash sale.