Author Topic: Tax Loss Harvesting question on intl fund?  (Read 3850 times)

jeromedawg

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Tax Loss Harvesting question on intl fund?
« on: June 17, 2015, 03:13:20 PM »
Hey all,

I bought quite a bit of FSGDX ($50k) back in November 2014 and it looks like it's currently in the red (almost $500 under). Should I go ahead and sell all of it in favor of tax loss harvesting? Or is there a certain best practice 'threshold' here that I should abide by (e.g. don't tax loss harvest unless it's $1000 or more)?

And the assumption of course would be to go ahead and buy it back after 30(?) days or so to get the fund back?

Just wondering what would be the best move here.

On a side note: I just placed orders to convert a couple intl funds we were holding in our Roth IRAs over to Spartan 500 Index Funds. Planning to load up the taxable accounts with the intl funds in order to take advantage of the FEIC
« Last Edit: June 17, 2015, 03:14:56 PM by jplee3 »

forummm

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Re: Tax Loss Harvesting question on intl fund?
« Reply #1 on: June 17, 2015, 03:41:40 PM »
If there are no transaction fees, and you don't mind the additional tax paperwork, doing some TLH here sounds fine. You do risk being out of the market while it goes back up. So put it into something that minimizes your risk of that.

jeromedawg

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Re: Tax Loss Harvesting question on intl fund?
« Reply #2 on: June 17, 2015, 03:50:05 PM »
If there are no transaction fees, and you don't mind the additional tax paperwork, doing some TLH here sounds fine. You do risk being out of the market while it goes back up. So put it into something that minimizes your risk of that.

What are some examples of ways to minimize the risk of "being out of the market"? Best to just invest it in a different fund and wait 90 days? In this case, FSIVX has lower fees/expenses than FSGDX, and I was considering increasing the amount of FSIVX that I have. Both FSIVX and FSGDX are in the red for me either way but I'm still within a 90 day period on FSIVX since I purchased it a month and a half ago. So while I could benefit from TLH on the FSIVX, I would still get hit with the short term trading fees (within the 90 days), but it wouldn't hurt to buy more of it either...

So would it be prudent then to go ahead and sell all shares of FSGDX (and take advantage of the TLH) and then just immediately buy FSIVX with all the proceeds?
« Last Edit: June 17, 2015, 03:54:07 PM by jplee3 »

forummm

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Re: Tax Loss Harvesting question on intl fund?
« Reply #3 on: June 17, 2015, 04:56:11 PM »
Yes, buying a highly correlated fund is one way to minimize market risk. I don't know anything about those two funds. They may be good candidates.

The IRS rules on what asset is different enough from the other to avoid the wash sale rule. I think you'd be fine swapping those two funds as far as the IRS goes.

jeromedawg

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Re: Tax Loss Harvesting question on intl fund?
« Reply #4 on: June 18, 2015, 10:40:15 AM »
Yes, buying a highly correlated fund is one way to minimize market risk. I don't know anything about those two funds. They may be good candidates.

The IRS rules on what asset is different enough from the other to avoid the wash sale rule. I think you'd be fine swapping those two funds as far as the IRS goes.

Cool. I'll give it a go. BTW: is an "exchange" classified differently and therefore result in no TLH? Or is it still considered a sale of funds, etc? I noticed, even though it was "sell all shares and use proceeds to buy another fund" it was classified as an "exchange" in the order details. I canceled it and opted just to sell all the shares. I'll probably just buy the other fund after the order goes through and as soon as the funds are available...

forummm

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Re: Tax Loss Harvesting question on intl fund?
« Reply #5 on: June 18, 2015, 10:49:54 AM »
Yes, buying a highly correlated fund is one way to minimize market risk. I don't know anything about those two funds. They may be good candidates.

The IRS rules on what asset is different enough from the other to avoid the wash sale rule. I think you'd be fine swapping those two funds as far as the IRS goes.

Cool. I'll give it a go. BTW: is an "exchange" classified differently and therefore result in no TLH? Or is it still considered a sale of funds, etc? I noticed, even though it was "sell all shares and use proceeds to buy another fund" it was classified as an "exchange" in the order details. I canceled it and opted just to sell all the shares. I'll probably just buy the other fund after the order goes through and as soon as the funds are available...

Exchange is still a taxable sale. If you just sell all shares, then they put cash in your account at the end of the day. Then you have to buy whatever you want with it, and that closes the next day. So you miss a day of being in the market. So if you made that sale with a posting day of last night you are irritated because the markets went up over a percent today (so far anyway). And you were not in the market today.

Actually, if you haven't sold yet, I wonder if you now even have a loss. It looked like you were only taking a 1% loss right?

jeromedawg

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Re: Tax Loss Harvesting question on intl fund?
« Reply #6 on: June 18, 2015, 11:00:10 AM »
Yes, buying a highly correlated fund is one way to minimize market risk. I don't know anything about those two funds. They may be good candidates.

The IRS rules on what asset is different enough from the other to avoid the wash sale rule. I think you'd be fine swapping those two funds as far as the IRS goes.

Cool. I'll give it a go. BTW: is an "exchange" classified differently and therefore result in no TLH? Or is it still considered a sale of funds, etc? I noticed, even though it was "sell all shares and use proceeds to buy another fund" it was classified as an "exchange" in the order details. I canceled it and opted just to sell all the shares. I'll probably just buy the other fund after the order goes through and as soon as the funds are available...

Exchange is still a taxable sale. If you just sell all shares, then they put cash in your account at the end of the day. Then you have to buy whatever you want with it, and that closes the next day. So you miss a day of being in the market. So if you made that sale with a posting day of last night you are irritated because the markets went up over a percent today (so far anyway). And you were not in the market today.

Actually, if you haven't sold yet, I wonder if you now even have a loss. It looked like you were only taking a 1% loss right?

Yea I was too late to close yesterday since I posted this late and ended up placing the orders after market close. So today is the only chance, except I'm still showing in the red for that fund. Currently it's at -0.81% so hopefully it won't go into the positive by close of market. FSIVX is even lower at -2.00% but I suppose that makes for a good buy. I changed it back to do the exchange based on what you said. It should still be able to go through.

forummm

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Re: Tax Loss Harvesting question on intl fund?
« Reply #7 on: June 18, 2015, 11:19:50 AM »
Did you determine that the funds are highly correlated? What are they composed of?

jeromedawg

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Re: Tax Loss Harvesting question on intl fund?
« Reply #8 on: June 18, 2015, 11:41:33 AM »
Did you determine that the funds are highly correlated? What are they composed of?

Both large blend and have top three of the same sectors:

Financials, Consumer Discretionary, and Industrials.

https://fundresearch.fidelity.com/mutual-funds/composition/316146141
https://fundresearch.fidelity.com/mutual-funds/composition/315911875

So it may end up being a wash?

I guess the other question is: if this doesn't benefit me for TLH, should I still go ahead and exchange the funds anyway if not for the lower fees/expenses that FSIVX maintains?


EDIT: regarding this being a wash, it may not be - https://www.bogleheads.org/forum/viewtopic.php?t=121868
« Last Edit: June 18, 2015, 11:46:30 AM by jplee3 »

forummm

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Re: Tax Loss Harvesting question on intl fund?
« Reply #9 on: June 18, 2015, 01:23:36 PM »
Having looked at it for like 30 seconds, they look to be pretty similar. One has 2x the number of stocks, but the concentration of both funds will be in the higher cap stocks that are going to be held in common between them. From the perspective of short term performance, my guess is that they will be very tightly correlated.

I'm not a tax advisor and not providing tax advice. I personally would feel OK trying to claim the tax loss on this sale. Worst case is the IRS disallows it. But my guess from reading other articles on the subject is that it would be fine.

milesdividendmd

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Re: Tax Loss Harvesting question on intl fund?
« Reply #10 on: June 18, 2015, 02:14:54 PM »
As long as you buy a passive fund that tracks a different index you should be fine.

Downsides are friction and transaction costs (bid ask spreads) and upside is dependent on your tax rates.

forummm

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Re: Tax Loss Harvesting question on intl fund?
« Reply #11 on: June 18, 2015, 02:24:36 PM »
As long as you buy a passive fund that tracks a different index you should be fine.

Downsides are friction and transaction costs (bid ask spreads) and upside is dependent on your tax rates.

I spent 30 seconds looking at it, but it looks like one tracks just EAFE and the other tracks the whole world ex-US (i.e. adds in Canada, emerging markets, and maybe other stuff). You should be fine.

jeromedawg

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Re: Tax Loss Harvesting question on intl fund?
« Reply #12 on: June 23, 2015, 12:12:03 PM »
Side question here: is it possible to tax loss harvest via selling an ETF? I just sold my shares of IYR in attempts to do this. Seems like it should work? But I'm not sure what fund I'm gonna reinvest in at this point... was thinking about FSRVX but I don't quite hit the minimum (https://fundresearch.fidelity.com/mutual-funds/summary/316146240?type=sq-NavBar)

forummm

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Re: Tax Loss Harvesting question on intl fund?
« Reply #13 on: June 23, 2015, 12:30:46 PM »
Side question here: is it possible to tax loss harvest via selling an ETF? I just sold my shares of IYR in attempts to do this. Seems like it should work? But I'm not sure what fund I'm gonna reinvest in at this point... was thinking about FSRVX but I don't quite hit the minimum (https://fundresearch.fidelity.com/mutual-funds/summary/316146240?type=sq-NavBar)

Yes, if you sell it for a loss.

jeromedawg

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Re: Tax Loss Harvesting question on intl fund?
« Reply #14 on: June 23, 2015, 12:51:00 PM »
Side question here: is it possible to tax loss harvest via selling an ETF? I just sold my shares of IYR in attempts to do this. Seems like it should work? But I'm not sure what fund I'm gonna reinvest in at this point... was thinking about FSRVX but I don't quite hit the minimum (https://fundresearch.fidelity.com/mutual-funds/summary/316146240?type=sq-NavBar)

Yes, if you sell it for a loss.

That's what I thought... and then there's a period of time where you can't buy it or "like-kind" after right? Was it 30 days or 60 days?

Guess I'll evaluate which other ETF I'd like to get with those funds in the meantime.

forummm

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Re: Tax Loss Harvesting question on intl fund?
« Reply #15 on: June 23, 2015, 01:08:19 PM »
Side question here: is it possible to tax loss harvest via selling an ETF? I just sold my shares of IYR in attempts to do this. Seems like it should work? But I'm not sure what fund I'm gonna reinvest in at this point... was thinking about FSRVX but I don't quite hit the minimum (https://fundresearch.fidelity.com/mutual-funds/summary/316146240?type=sq-NavBar)

Yes, if you sell it for a loss.

That's what I thought... and then there's a period of time where you can't buy it or "like-kind" after right? Was it 30 days or 60 days?

Guess I'll evaluate which other ETF I'd like to get with those funds in the meantime.

Reader friendly and the IRS source versions of info on the Wash Sale Rule
http://www.investopedia.com/terms/w/washsalerule.asp
http://www.irs.gov/publications/p550/ch04.html#en_US_2014_publink100010601