sale some ETF's at a loss to be FIRE ready?

[billy]

I have 4 ETF's at M1 finance in my taxable, but since I changed my FIRE date from 13 to 3 more years I think I should be more conservative for sure. Unfortunately, I would take a loss with DLS, VWO, and EWX, about $2,383.00 in losses. I thought about selling all 4 ETF's and buying VFIAX at my Vanguard taxable account. I file my taxes married filing jointly, so I could use the loss as a write off of my income for most of it, just not thrilled about taking a realized loss.

[PDXTabs]

Unfortunately, I would take a loss with DLS, VWO, and EWX, about $2,383.00 in losses. I thought about selling all 4 ETF's and buying VFIAX at my Vanguard taxable account. I file my taxes married filing jointly, so I could use the loss as a write off of my income for most of it, just not thrilled about taking a realized loss.

You're doing it wrong. You should be thrilled to take the loss and write it off of your taxes. If this was a long term capital loss it's even better, because you get to use it to deduct ordinary income, which is taxed at a higher rate.*

* - than any long term capital gains that you didn't have to use it on

[MustacheAndaHalf]

The IRS is also not thrilled, since they'll owe you $360.  When you sell at a loss, the loss cancels out other capital gains first (15% x $2400), and if there's no capital gains, cancels out ordinary income.  I view that as a loan from the IRS at 0% interest until I decide to pay it back (by realizing a gain).

I would sell in either event.  If you want to keep a similar allocation, you can use a different ETF (EEMV or something that has emerging markets exposure) for 31 days.  Once you've waited out the wash sale window, you can buy back your original ETFs.  Or, if you want a permanent change to a higher bond allocation, switch to that and no need to buy back in.

[billy]

Okay, thanks I'll sell.

[terran]

Unfortunately, I would take a loss with DLS, VWO, and EWX, about $2,383.00 in losses. I thought about selling all 4 ETF's and buying VFIAX at my Vanguard taxable account. I file my taxes married filing jointly, so I could use the loss as a write off of my income for most of it, just not thrilled about taking a realized loss.

You're doing it wrong. You should be thrilled to take the loss and write it off of your taxes. If this was a long term capital loss it's even better, because you get to use it to deduct ordinary income, which is taxed at a higher rate.*

* - than any long term capital gains that you didn't have to use it on

This might not be what you mean, but just for point of clarification, short term losses are actually even better than long term losses because the can be written off against short term gains, long term gains, or up to $3000/year can be written off against ordinary income as you say. Long term losses can only be written off against long term gains or $3000/year of ordinary income (but not short term losses), so they're slightly less useful (still very good, as the ordinary income write off is the best part, though).

[billy]

Thanks for clarifying that, sounds like it can get complicated when I do my taxes next year. I use H&R Block Premier online, when I enter my 1099 from m1 Finance, I wonder if it will auto calculate what can be used as a write off?

[terran]

Yes, I imagine it will. It should fill out a schedule D with the loss and any gains you have. If, between short and long term gains/losses, you have an overall loss the greater of your actual loss or $3000 will end up on line 21 (greater in this case meaning smaller loss since it's a negative number). This then goes to schedule 1 and will offset any income there and then from there to form 1040 where any remaining loss will offset income there.

[MustacheAndaHalf]

I used "H&R Block Deluxe" this year, and it imported all my transactions from Vanguard.  I didn't need to enter anything by hand, even though some of the transactions were capital losses.  There wasn't any additional work involved to do the calculations.

If your gains exceed your losses by more than $3,000 then you would have a capital loss that carries over to future years.

[billy]

Yes, your right H&R Block does direct import, did the same and it worked great. I call CS but it seemed they didn't know what they were talking about and suggested that I enter the capital loss manually.

Do you mean if my loss exceeds my gains, then that extra would carry over? And I thought it would automatically be applied to deduce income tax?

[MustacheAndaHalf]

Once your capital losses exceed your gains, then you apply up to $3,000 deduction from your income.  But if the remainder still exceeds the $3,000 applied to income, then you have some capital loss to carryover to future years (used up each year until it's gone).