Author Topic: Tax Loss Harvesting Rule of Thumb?  (Read 3292 times)

jeromedawg

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Tax Loss Harvesting Rule of Thumb?
« on: March 12, 2020, 09:43:29 PM »
Hey all,

Wondering what your 'tipping point' is as a rule of thumb for TLH. Do you wait for a specific % loss before you pull the trigger? Or do you aim for certain dollar amount of loss? I have a good amount I could probably TLH on across my portfolio at the moment but am wondering if I should continue waiting or if I should just pull the trigger and do it now/asap.

I know TLH can be a very  good thing but what makes it a 'conundrum' for me is the aspect of it that seems to assume there's some sort of timing involved. How do you guys reconcile this with "DO NOT TIME THE MARKET!!!"

Gatzbie

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #1 on: March 12, 2020, 09:57:00 PM »
Looking into this too as it has always been uphill since I started investing until now.

For this topic, I have liked Physician on Fire's step-by-step guide using Vanguard (https://www.physicianonfire.com/tax-loss-harvesting-vanguard/)

I would have a $ amount threshold to have in mind where you think it's worth it to TLH & proceed.

jeromedawg

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #2 on: March 12, 2020, 10:17:04 PM »
Looking into this too as it has always been uphill since I started investing until now.

For this topic, I have liked Physician on Fire's step-by-step guide using Vanguard (https://www.physicianonfire.com/tax-loss-harvesting-vanguard/)

I would have a $ amount threshold to have in mind where you think it's worth it to TLH & proceed.

Thanks! I'll check it out.

On that note, I need to find some suitable TLH partners... anyone have recommendations?
FSPSX (previously 'partnered' with FSGGX so wondering if that's still the best one)

Otherwise, the rest of the funds I have with loss are as follows:
DVY
HDV
IXUS
SDY


Wondering if I should just sell them all and purchase FXAIX and either FSPSX or FSGGX.

MustacheAndaHalf

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #3 on: March 13, 2020, 07:12:53 AM »
Consider using "last time at this price" to measure the depth of a price drop, and if it's a good idea to realize losses or make an extra purchase.

For example, VEU (Total International) was last at $39.05/share back in May of 2012.  It's incredibly rare to see 8 years of past purchases all be worse than buying today.  (Or realizing a loss today)

VTI hasn't been at current levels since June of 2017.  Since tax loss harvesting is something you can do during one tax year, anytime it's a multi-year low, that's a good sign for TLH (or buying new shares).

A key point: pick a similar but not "substantially identical" (IRS wording) asset to buy.  Maybe an ETF from a different company, tracking a different index - but still US stocks, or international.

terran

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #4 on: March 13, 2020, 07:20:46 AM »
Well, I've got $3k of losses from earlier this week that I can use to offset ordinary income in 2020. I might TLH again to get another $3k for 2021. If it had been more than 30 days since I first TLH'ed I might do it for a smaller amount since that would bring me back to one of my preferred ETFs. So basically, I guess I'm saying hitting a threshold that gets me another year of losses to offset ordinary income ($3k/year limit) then I'm willing to hunt around for an acceptable TLH partner a little more, and if conditions are ideal (I end with one of my favorites for that asset class) I'd probably do it for just about anything that doesn't result in a gain.

Spitfire

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #5 on: March 13, 2020, 08:00:48 AM »
I did this at the end of 2018 when the market dipped, but it was not based on a rule I had in mind. It was more of a "hey the market is going down" and logging in to see a big red number in my account. I exchanged VTSAX for VFIAX to take a loss. Now that I'm thinking about it, I'm not sure if that was a wash sale, but I have not been questioned on it as of yet.

I have been wanting to flip it back to VTSAX and if it goes down a little more to put my VFIAX in the red I will do so.
« Last Edit: March 13, 2020, 08:13:26 AM by Spitfire »

Boofinator

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #6 on: March 13, 2020, 08:20:13 AM »
I check my accounts about every other week, and if I see red showing more than about a hundred dollars, I TLH (checking of course the current day's gains or losses in the ETF to make sure the loss doesn't revert to a gain).

terran

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #7 on: March 13, 2020, 08:27:40 AM »
IXUS

You're at Fidelity? Me too, and international is what I have in my taxable account, so I've gone from IXUS to VXUS. Next I'll probably go to 80% IDEV, 20% IEMG.  IEFA would be a fine alternative to IDEV, which is basically the same except it excludes Canada. Not sure where I'd go beyond that, so I'm open to suggestions.

terran

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #8 on: March 13, 2020, 08:31:07 AM »
I exchanged VTSAX for VFIAX to take a loss. Now that I'm thinking about it, I'm not sure if that was a wash sale, but I have not been questioned on it as of yet.

Some people would say yes, but I think most would say no. I have a hard time seeing how something that is 80% the same can be said to be substantially identical. Substantially similar sure, but that's not the rule.

I'm comfortable tax loss harvesting between anything that follows a different index, but unlike some people I'm not comfortable going between anything with a different ticker (or run by a different company, etc) even if it follows the same index.

jeromedawg

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #9 on: March 13, 2020, 10:16:50 AM »
Well, I've got $3k of losses from earlier this week that I can use to offset ordinary income in 2020. I might TLH again to get another $3k for 2021. If it had been more than 30 days since I first TLH'ed I might do it for a smaller amount since that would bring me back to one of my preferred ETFs. So basically, I guess I'm saying hitting a threshold that gets me another year of losses to offset ordinary income ($3k/year limit) then I'm willing to hunt around for an acceptable TLH partner a little more, and if conditions are ideal (I end with one of my favorites for that asset class) I'd probably do it for just about anything that doesn't result in a gain.

I have a huge amount of loss in FSPSX right now - so much so that I could probably carry it over across multiple years which is what I did previously several years ago. From what you are saying and IIRC, it sounds like $3k is the max you can claim for losses per year? But apparently you can carry your losses over, so if you have $15k of losses, theoretically you can claim $3k in losses year over year for 5 years  - someone please correct me if I'm mistaken.

Spitfire

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #10 on: March 13, 2020, 11:15:20 AM »
You are correct. It's 3k per year of deductible losses and you can carry it forward until that is all used up. Keep in mind if you have any capital gains then the loss you carried forward would be used to offset those first.

jeromedawg

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #11 on: March 13, 2020, 03:12:55 PM »
One other question - is there any 'penalty' selling funds I've held short-term at a loss? I know that it matters when you sell for a gain (as that taxed capital gains rate is higher), so conversely, does something similar happen when you sell where you may not be able to claim *as much* loss?

Spitfire

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #12 on: March 13, 2020, 03:29:55 PM »
There should be no problem with long-term vs short-term. The losses will offset their "kind" of gains first, but any losses exceeding gains of either type can be deducted, up to 3k.

BECABECA

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #13 on: March 13, 2020, 03:45:49 PM »
It’s my understanding that it’s actually better if you can get short term losses, since those are the only ones that are allowed to offset short term capital gains (which are taxed at a much higher rate than the worst case for your long term capital gains).

I used yesterday’s market bloodbath to sell all of one fund and convert it into another I’d been wanting instead. Racked up an over $60k tax loss harvest, half of which is short term loss. That should last me quite a few years of tax returns.

jeromedawg

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #14 on: March 13, 2020, 04:00:06 PM »
It’s my understanding that it’s actually better if you can get short term losses, since those are the only ones that are allowed to offset short term capital gains (which are taxed at a much higher rate than the worst case for your long term capital gains).

I used yesterday’s market bloodbath to sell all of one fund and convert it into another I’d been wanting instead. Racked up an over $60k tax loss harvest, half of which is short term loss. That should last me quite a few years of tax returns.


That's awesome lol. $60k is great! Not quite there but wish I had that much to TLH hahaha

Was curious to know if TLH is worth doing in UTMA accounts as well. There are a couple funds my dad contributed to my kids' UTMAs that I want to get out of and put into the SP500 or Total Market instead. Seems like now (well, Monday at this rate) would be a good time to do it
« Last Edit: March 13, 2020, 04:08:17 PM by jeromedawg »

BECABECA

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #15 on: March 13, 2020, 05:31:51 PM »
It’s my understanding that it’s actually better if you can get short term losses, since those are the only ones that are allowed to offset short term capital gains (which are taxed at a much higher rate than the worst case for your long term capital gains).

I used yesterday’s market bloodbath to sell all of one fund and convert it into another I’d been wanting instead. Racked up an over $60k tax loss harvest, half of which is short term loss. That should last me quite a few years of tax returns.


That's awesome lol. $60k is great! Not quite there but wish I had that much to TLH hahaha

Was curious to know if TLH is worth doing in UTMA accounts as well. There are a couple funds my dad contributed to my kids' UTMAs that I want to get out of and put into the SP500 or Total Market instead. Seems like now (well, Monday at this rate) would be a good time to do it

No clue on if the kid can use those losses on their future taxes when they make money, but you could definitely use the down market to sell a fund you’re not happy in and switch to a better one without incurring capital gains, provided that the fund you’re selling is currently trading below your cost basis.

Le Barbu

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #16 on: March 13, 2020, 06:33:20 PM »
Canadian here

Just replaced my canadian index fund for another (similar) today and harvested a 7.5k$ loss

I have already 4k$ gain to offset from last year an will carry the rest for the future

My trigger is over 5k$

Don’t forget to consider the bid/ask spread and fluctuations!

My net gain is around 1.5$

Travis

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #17 on: March 13, 2020, 07:16:44 PM »
Just executed a trade of VFWAX to VTIAX. It looks like a $10k loss, but since the trade won't be complete until close of business Monday we'll see what the final number will be.

Vapour

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #18 on: March 13, 2020, 08:31:06 PM »
Thanks for starting this thread.  You have me thinking of tax loss harvesting which I've never done before.  I have a question about wash sales if anyone thinks they can help.

I have all VTSAX in my Vanguard taxable account.  I currently have ~$4.5k of short and long term losses.  I bought $2k of VTSAX 2 weeks ago on 2/28.  That accounts for $191 of my loss.  If I were to sell all lots that have a loss, including the 2/28 lot, would I incur a wash sale?  I think not since I'm selling the lot that I bought <30 days ago, right?  Now, if I sold everything except the 2/28 lot, then that would be a wash sale.  Am I understanding this correctly?  Just want to make sure I don't mess this up.  I might just wait 2 more weeks to be safe and to see if we go lower.  Should have checked this yesterday!!  I have a feeling we'll be trending downward for a while though with the virus now spreading in the US.

terran

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #19 on: March 13, 2020, 08:45:43 PM »
Thanks for starting this thread.  You have me thinking of tax loss harvesting which I've never done before.  I have a question about wash sales if anyone thinks they can help.

I have all VTSAX in my Vanguard taxable account.  I currently have ~$4.5k of short and long term losses.  I bought $2k of VTSAX 2 weeks ago on 2/28.  That accounts for $191 of my loss.  If I were to sell all lots that have a loss, including the 2/28 lot, would I incur a wash sale?  I think not since I'm selling the lot that I bought <30 days ago, right?  Now, if I sold everything except the 2/28 lot, then that would be a wash sale.  Am I understanding this correctly?  Just want to make sure I don't mess this up.  I might just wait 2 more weeks to be safe and to see if we go lower.  Should have checked this yesterday!!  I have a feeling we'll be trending downward for a while though with the virus now spreading in the US.

Yes, as long as you sell everything you bought within 30 days and don't buy again within 30 days then you're good.

Vapour

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #20 on: March 13, 2020, 08:52:39 PM »
Thanks for starting this thread.  You have me thinking of tax loss harvesting which I've never done before.  I have a question about wash sales if anyone thinks they can help.

I have all VTSAX in my Vanguard taxable account.  I currently have ~$4.5k of short and long term losses.  I bought $2k of VTSAX 2 weeks ago on 2/28.  That accounts for $191 of my loss.  If I were to sell all lots that have a loss, including the 2/28 lot, would I incur a wash sale?  I think not since I'm selling the lot that I bought <30 days ago, right?  Now, if I sold everything except the 2/28 lot, then that would be a wash sale.  Am I understanding this correctly?  Just want to make sure I don't mess this up.  I might just wait 2 more weeks to be safe and to see if we go lower.  Should have checked this yesterday!!  I have a feeling we'll be trending downward for a while though with the virus now spreading in the US.

Yes, as long as you sell everything you bought within 30 days and don't buy again within 30 days then you're good.
Awesome, thanks so much for confirming what I thought!  These rules can be so complicated it's always good to get a second opinion.  Much appreciated!

ChpBstrd

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #21 on: March 13, 2020, 10:10:51 PM »
I'm not sure I see the point. Assuming stocks come back some day, when one TLHes and buys something different, it reduces taxes this year but lowers the cost basis by an equal amount, so you'll just pay those taxes in the future.

Example:

Buy at $1000, stocks drop, Sell at $800, Buy something else at $800, Sell at $1000 in a future year.
Income is reduced $200 this year.
However, you now have $200 additional income in that future year.
And your investment broke even.

Maybe there's a time value of money argument about the tax savings, or maybe you guess your marginal tax bracket will be lower in that future year. All things being equal it's a wash.

The tax opportunity I see is detailed in this post:
https://forum.mrmoneymustache.com/investor-alley/nows-the-time-to-do-a-fat-roth-conversion!/

Vapour

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #22 on: March 13, 2020, 10:23:32 PM »
I'm not sure I see the point. Assuming stocks come back some day, when one TLHes and buys something different, it reduces taxes this year but lowers the cost basis by an equal amount, so you'll just pay those taxes in the future.

Example:

Buy at $1000, stocks drop, Sell at $800, Buy something else at $800, Sell at $1000 in a future year.
Income is reduced $200 this year.
However, you now have $200 additional income in that future year.
And your investment broke even.

Maybe there's a time value of money argument about the tax savings, or maybe you guess your marginal tax bracket will be lower in that future year. All things being equal it's a wash.

The tax opportunity I see is detailed in this post:
https://forum.mrmoneymustache.com/investor-alley/nows-the-time-to-do-a-fat-roth-conversion!/
Well the long-term capital gains tax rates are lower than ordinary income tax rates.  So I can save 22% on taxes now by deducting the loss against my income, and then pay 15% taxes on the gain later on.  7% off, yay!  It's also quite possible that a lot of mustachians who RE with lower income will be in the 0% capital gains tax bracket.  22% saved, even better!

There has been talk by democrats more recently about getting rid of the capital gains tax rate, so there is that to keep in mind.

ChpBstrd

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #23 on: March 13, 2020, 10:39:37 PM »
I'm not sure I see the point. Assuming stocks come back some day, when one TLHes and buys something different, it reduces taxes this year but lowers the cost basis by an equal amount, so you'll just pay those taxes in the future.

Example:

Buy at $1000, stocks drop, Sell at $800, Buy something else at $800, Sell at $1000 in a future year.
Income is reduced $200 this year.
However, you now have $200 additional income in that future year.
And your investment broke even.

Maybe there's a time value of money argument about the tax savings, or maybe you guess your marginal tax bracket will be lower in that future year. All things being equal it's a wash.

The tax opportunity I see is detailed in this post:
https://forum.mrmoneymustache.com/investor-alley/nows-the-time-to-do-a-fat-roth-conversion!/
Well the long-term capital gains tax rates are lower than ordinary income tax rates.  So I can save 22% on taxes now by deducting the loss against my income, and then pay 15% taxes on the gain later on.  7% off, yay!  It's also quite possible that a lot of mustachians who RE with lower income will be in the 0% capital gains tax bracket.  22% saved, even better!

There has been talk by democrats more recently about getting rid of the capital gains tax rate, so there is that to keep in mind.

Gotcha. I was assuming we were talking about assets already held over a year.

One might have to specify in the sale order which shares in an accumulated pile are being sold (the most recently purchased). If you buy 100 shares per year, and now have 1000 shares, you would want to sell the 100 shares owned less than one year to effectively TLH. LIFO not FIFO!

Systems101

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #24 on: March 13, 2020, 11:35:51 PM »
I'm not sure I see the point.
(snip)
All things being equal it's a wash.

All things aren't equal.

In addition to those already noted (time value of money, capital gains rates vs income tax rates, income tax arbitrage from different rates in the future [which could be 0%]):
- High percentage gains in securities means I can (in the future) donate those to a Donor Advised Fund and never pay any taxes on the gain (if held for >1 year deduct the full future value not the cost basis)
- Sell (bond) funds directly before a distribution date, re-buy directly after.  Effectively converts bond interest income (full tax rate) to capital gains income (using offsetting losses).  Similar situations can occur on zero coupon bonds selling above par.
- I don't advise this, but for those who itemize and really want to be creative in taking risks: Buy REITs on margin; create interest expense deductions and capital gains (offset by losses). (turns unused capital losses into interest expense, allowing it to be deducted against a different bucket of income)

I'd be stunned if there aren't other methods the tax code creates.

One might have to specify in the sale order which shares in an accumulated pile are being sold (the most recently purchased). If you buy 100 shares per year, and now have 1000 shares, you would want to sell the 100 shares owned less than one year to effectively TLH. LIFO not FIFO!

One must specify it the day of the trade.  Schwab's "Tax Lot Optimizer" mode (now my default setting) makes it easy :)
« Last Edit: March 13, 2020, 11:37:59 PM by Systems101 »

Vapour

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #25 on: March 14, 2020, 07:38:58 AM »
Gotcha. I was assuming we were talking about assets already held over a year.

One might have to specify in the sale order which shares in an accumulated pile are being sold (the most recently purchased). If you buy 100 shares per year, and now have 1000 shares, you would want to sell the 100 shares owned less than one year to effectively TLH. LIFO not FIFO!
Assets held more than a year can still be used to offset income.  As long as you only have losses and no gains in the year.  Short-term losses first offset short-term gains, then long-term gains, then ordinary income.  Long-term losses first offset long-term gains, then ordinary income.  So as long as you have no short or long term gains, your losses will offset income.

I use SpecID cost basis method at Vanguard so I can specify exactly which lots to sell.  I can only sell the lots that have a loss and not sell any that have gains.

appleshampooid

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #26 on: March 14, 2020, 08:04:51 AM »
It's also quite possible that a lot of mustachians who RE with lower income will be in the 0% capital gains tax bracket.  22% saved, even better!
This ^. This is my plan, I call it the Go Curry Cracker "Never pay taxes again" plan (since he has detailed posts about it every year with his tax returns).
Quote
There has been talk by democrats more recently about getting rid of the capital gains tax rate, so there is that to keep in mind.
Yeah, hard to make long-term tax decisions when you never know what future policy will be. But thankfully I'm rich; if I plan for 0 taxes in retirement and actually have to pay some (say, capital gains just get lumped in with all income so no more 0% up to $77k in cap gains), it will still be generally low since I will still have a low income in retirement. Back to the GCC plan - leisure over labor.

appleshampooid

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #27 on: March 14, 2020, 08:15:37 AM »
To think, I thought I missed the boat on 2/28 when I was too distracted by getting my refinance application in put in my TLH order. Oh, poor optimistic, past me :)

I don't have a hard-and-fast rule, but so far this year I locked in $4,522.43 in losses from a few days ago. And already have $10k in losses on the fund I switched into, whoops haha! Also cleared out some old ETFs from past iterations of my AA/IPS that were at a loss. Still not all of them...

The "bright side" for me, is the fund I switched into is the less-ideal one for me personally. So if in 30 days we're still going down/recovering I will harvest more losses and switch back to my preferred fund.

Vapour

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #28 on: March 14, 2020, 09:51:28 AM »
It's also quite possible that a lot of mustachians who RE with lower income will be in the 0% capital gains tax bracket.  22% saved, even better!
This ^. This is my plan, I call it the Go Curry Cracker "Never pay taxes again" plan (since he has detailed posts about it every year with his tax returns).
Quote
There has been talk by democrats more recently about getting rid of the capital gains tax rate, so there is that to keep in mind.
Yeah, hard to make long-term tax decisions when you never know what future policy will be. But thankfully I'm rich; if I plan for 0 taxes in retirement and actually have to pay some (say, capital gains just get lumped in with all income so no more 0% up to $77k in cap gains), it will still be generally low since I will still have a low income in retirement. Back to the GCC plan - leisure over labor.
Yeah, it's my plan as well.  The best we can do is make decisions based on what the law is now.  I just wanted to point out that it's possible things change before you realize those cap gains.  Like you said, most people will probably still be in a lower bracket in retirement vs. working anyway.  So I'd probably pay 12% instead of 0%.  Still not bad!  Worst case, I'm in the same bracket and haven't lost anything plus got to invest the governments money for those years.  Plus, the dems might actually give some good benefits in return for increasing this tax, like healthcare.

Geographer

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #29 on: March 14, 2020, 11:57:30 AM »
Question -- I TLH'ed for the first time and have realized $10k in long term losses. Do I have to take some of that this year or can I hold it off for future years? I'll be without any taxable income this year due to working abroad and FEIE. Thanks!

Vapour

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #30 on: March 14, 2020, 10:14:36 PM »
Question -- I TLH'ed for the first time and have realized $10k in long term losses. Do I have to take some of that this year or can I hold it off for future years? I'll be without any taxable income this year due to working abroad and FEIE. Thanks!
I'm not sure.  I don't have any experience with the FEIE or having 0 taxable income.  It seems like the capital loss carryover worksheet takes this into account, saying, "if the amount on your 2018 Form 1040, line 10 (or your 2018 Form 1040-NR, line 41, if applicable) would be less than zero if you could enter a negative amount on that line."  Line 10 on 2018's 1040 is for taxable income, which in your case you're saying is zero and would be -3k if you could enter a negative amount.  I believe this means you could carryover the full 10k to future years.  Now, I could be wrong and you'll definitely want to double check this.  Look at Form 1040, Schedule D, and Instructions for Schedule D (which includes the capital loss carryover worksheet).  Maybe ask here on the Tax forum and see if a CPA or someone who knows more can help you out.

It sounds like you should be thinking more of Roth conversions and tax GAIN harvesting if you're in a situation with 0 taxable income.  Do you have any traditional IRA/401k money that you could convert to Roth?  Any gains in your taxable account?

Also, hope you're doing ok in Italy now (if that's where you are).  Crazy times we're living in.

jeromedawg

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #31 on: March 16, 2020, 11:04:26 AM »
BTW: was curious with these three funds I have:

DVY - second largest position least % total loss
HDV - largest position and largest % total loss
SDY - least largest position second largest % total loss


If I were to TLH between these funds is there a particular way I should go about it? e.g. would I want to aim to reduce my position in HDV and 'swap' for more SDY and DVY? Or the other way around? Or better to dump all three and go with a different TLH partner all together?

pigpen

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #32 on: March 16, 2020, 02:07:58 PM »
Assuming I didn't screw up and end up with a wash sale, we locked in some sweet, sweet losses today. We'll be deducting this one for years. Thanks to fellow MMMers for the tips and discussion that made it possible.

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #33 on: March 16, 2020, 07:18:00 PM »
Assuming I didn't screw up and end up with a wash sale, we locked in some sweet, sweet losses today. We'll be deducting this one for years. Thanks to fellow MMMers for the tips and discussion that made it possible.
I second this.  I also pulled the trigger today and am the proud owner of some VFIAX!  I think I locked in almost $12k of losses.  That should last me for the rest of my working years (unless we stay stuck in this recession for years then I might be in trouble).  I consolidated almost 3 years worth of weekly buys into one lot as well.  It took forever to pick all those lots.  I'm done with weekly buying!  Hopefully I did everything right.  Vanguard hasn't finished updating yet.  If things are still down in a month, I'll probably transfer back to VTSAX.  Otherwise, VFIAX should be good enough.  Thanks everyone!  This forum is awesome.

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #34 on: March 16, 2020, 07:29:56 PM »
BTW: was curious with these three funds I have:

DVY - second largest position least % total loss
HDV - largest position and largest % total loss
SDY - least largest position second largest % total loss

If I were to TLH between these funds is there a particular way I should go about it? e.g. would I want to aim to reduce my position in HDV and 'swap' for more SDY and DVY? Or the other way around? Or better to dump all three and go with a different TLH partner all together?
Is there a reason you have these 3 funds to begin with? Or did it start with TLHing into them?  That's when TLHing starts to get complicated.  If you don't care which fund you own, I'd maybe dump any losses in HDV and SDY and put them into DVY.  If you can completely get rid of SDY, even better.  I'm a fan of simplicity.  It depends on how much gains are in each too though and what your long term plans are.

Also, dividend funds are not good for taxable accounts since you have to pay tax on the dividends every year.  It seems like the opposite of what you'd want.  I know people have different ideas about whether dividend funds are better, but at least for taxable I think they'd lose to a standard index fund.  Could be wrong though.  To each their own.

jeromedawg

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #35 on: March 16, 2020, 08:30:31 PM »
BTW: was curious with these three funds I have:

DVY - second largest position least % total loss
HDV - largest position and largest % total loss
SDY - least largest position second largest % total loss

If I were to TLH between these funds is there a particular way I should go about it? e.g. would I want to aim to reduce my position in HDV and 'swap' for more SDY and DVY? Or the other way around? Or better to dump all three and go with a different TLH partner all together?
Is there a reason you have these 3 funds to begin with? Or did it start with TLHing into them?  That's when TLHing starts to get complicated.  If you don't care which fund you own, I'd maybe dump any losses in HDV and SDY and put them into DVY.  If you can completely get rid of SDY, even better.  I'm a fan of simplicity.  It depends on how much gains are in each too though and what your long term plans are.

Also, dividend funds are not good for taxable accounts since you have to pay tax on the dividends every year.  It seems like the opposite of what you'd want.  I know people have different ideas about whether dividend funds are better, but at least for taxable I think they'd lose to a standard index fund.  Could be wrong though.  To each their own.

I sort of 'lost focus' and at some point got a bit obsessed with "dividends" as sort of a source of income. The stupid thing is I was just reinvesting the dividends into buying more ETFs/index funds anyway lol. So it sounds like the best thing to do then is to sell all three and buy more FSAIX or FSGGX (or same TLH partner for FSPSX). I figure at least with dividends from the International Index Funds, you can get the foreign tax credit back so I may just go with FSAIX, FSGGX and *maybe* VXUS. I actually have a couple more ETFS (ITOT and IVV) but am avoiding dumping those until they show losses where I can TLH on them.

BTW, other TLH partners for FSPSX would be:
FTIHX - Fidelity Total International Index Fund
FSGGX - Fidelity Global ex U.S. Index Fund
FZILX - Fidelity ZERO International Index Fund


Also, was curious if it's a OK to place an order *now* (after-hours) to do all these exchanges OR if I should wait until the first thing tomorrow when the market opens and commit the trades then.
« Last Edit: March 16, 2020, 08:33:01 PM by jeromedawg »

Vapour

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #36 on: March 16, 2020, 09:33:17 PM »
BTW: was curious with these three funds I have:

DVY - second largest position least % total loss
HDV - largest position and largest % total loss
SDY - least largest position second largest % total loss

If I were to TLH between these funds is there a particular way I should go about it? e.g. would I want to aim to reduce my position in HDV and 'swap' for more SDY and DVY? Or the other way around? Or better to dump all three and go with a different TLH partner all together?
Is there a reason you have these 3 funds to begin with? Or did it start with TLHing into them?  That's when TLHing starts to get complicated.  If you don't care which fund you own, I'd maybe dump any losses in HDV and SDY and put them into DVY.  If you can completely get rid of SDY, even better.  I'm a fan of simplicity.  It depends on how much gains are in each too though and what your long term plans are.

Also, dividend funds are not good for taxable accounts since you have to pay tax on the dividends every year.  It seems like the opposite of what you'd want.  I know people have different ideas about whether dividend funds are better, but at least for taxable I think they'd lose to a standard index fund.  Could be wrong though.  To each their own.

I sort of 'lost focus' and at some point got a bit obsessed with "dividends" as sort of a source of income. The stupid thing is I was just reinvesting the dividends into buying more ETFs/index funds anyway lol. So it sounds like the best thing to do then is to sell all three and buy more FSAIX or FSGGX (or same TLH partner for FSPSX). I figure at least with dividends from the International Index Funds, you can get the foreign tax credit back so I may just go with FSAIX, FSGGX and *maybe* VXUS. I actually have a couple more ETFS (ITOT and IVV) but am avoiding dumping those until they show losses where I can TLH on them.

BTW, other TLH partners for FSPSX would be:
FTIHX - Fidelity Total International Index Fund
FSGGX - Fidelity Global ex U.S. Index Fund
FZILX - Fidelity ZERO International Index Fund


Also, was curious if it's a OK to place an order *now* (after-hours) to do all these exchanges OR if I should wait until the first thing tomorrow when the market opens and commit the trades then.
I would only do Vanguard mutual funds in taxable and do ETFs if you're with Fidelity.  Vanguard has a special deal where they say their mutual funds and ETFs are the same share class or something like that so are treated the same tax-wise.  ETFs are more tax efficient and don't spit off much in the way of capital gains that you have to pay tax on.  Just another thing to keep in mind.  This matters more as you start getting more money in the funds.  See here: https://www.fidelity.com/learning-center/investment-products/etf/etfs-tax-efficiency

IXUS and IEFA are good international ETFs if that's what you want.  I found that with international funds, you get the foreign tax credit, but less dividends are qualified so it seems to about even out.  I found it simpler to drop international from my taxable and go US only since I appreciate simplicity and it saved me from having to fill out another form on my taxes.  I have all my international in my 401k and IRA now.  Then again, this year I needed a new tax form because VTSAX had some REIT dividends that were eligible for a QBI deduction, so back to filling out an extra form for $37.  Oh well.  I'll take the $37.

I wouldn't ever put any orders in overnight.  If you're TLHing, trade during the day for ETFs and see where the market is at to see where mutual funds will likely close.  Today, I looked at VTI as a predictor for where VTSAX would likely close.  I was a bit conservative and missed out on selling a few lots that had losses but I did pretty well.  I'd wait and see where we're at tomorrow.  I'm guessing it goes back up because that's generally what it's been doing after large loss days.  But who knows.  We're in week 4 of crazy stock market and anything could happen.  It seems likely to keep trending downwards until coronavirus gets under control.  Which may be a while...

jeromedawg

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #37 on: March 16, 2020, 09:51:13 PM »
BTW: was curious with these three funds I have:

DVY - second largest position least % total loss
HDV - largest position and largest % total loss
SDY - least largest position second largest % total loss

If I were to TLH between these funds is there a particular way I should go about it? e.g. would I want to aim to reduce my position in HDV and 'swap' for more SDY and DVY? Or the other way around? Or better to dump all three and go with a different TLH partner all together?
Is there a reason you have these 3 funds to begin with? Or did it start with TLHing into them?  That's when TLHing starts to get complicated.  If you don't care which fund you own, I'd maybe dump any losses in HDV and SDY and put them into DVY.  If you can completely get rid of SDY, even better.  I'm a fan of simplicity.  It depends on how much gains are in each too though and what your long term plans are.

Also, dividend funds are not good for taxable accounts since you have to pay tax on the dividends every year.  It seems like the opposite of what you'd want.  I know people have different ideas about whether dividend funds are better, but at least for taxable I think they'd lose to a standard index fund.  Could be wrong though.  To each their own.

I sort of 'lost focus' and at some point got a bit obsessed with "dividends" as sort of a source of income. The stupid thing is I was just reinvesting the dividends into buying more ETFs/index funds anyway lol. So it sounds like the best thing to do then is to sell all three and buy more FSAIX or FSGGX (or same TLH partner for FSPSX). I figure at least with dividends from the International Index Funds, you can get the foreign tax credit back so I may just go with FSAIX, FSGGX and *maybe* VXUS. I actually have a couple more ETFS (ITOT and IVV) but am avoiding dumping those until they show losses where I can TLH on them.

BTW, other TLH partners for FSPSX would be:
FTIHX - Fidelity Total International Index Fund
FSGGX - Fidelity Global ex U.S. Index Fund
FZILX - Fidelity ZERO International Index Fund


Also, was curious if it's a OK to place an order *now* (after-hours) to do all these exchanges OR if I should wait until the first thing tomorrow when the market opens and commit the trades then.
I would only do Vanguard mutual funds in taxable and do ETFs if you're with Fidelity.  Vanguard has a special deal where they say their mutual funds and ETFs are the same share class or something like that so are treated the same tax-wise.  ETFs are more tax efficient and don't spit off much in the way of capital gains that you have to pay tax on.  Just another thing to keep in mind.  This matters more as you start getting more money in the funds.  See here: https://www.fidelity.com/learning-center/investment-products/etf/etfs-tax-efficiency

IXUS and IEFA are good international ETFs if that's what you want.  I found that with international funds, you get the foreign tax credit, but less dividends are qualified so it seems to about even out.  I found it simpler to drop international from my taxable and go US only since I appreciate simplicity and it saved me from having to fill out another form on my taxes.  I have all my international in my 401k and IRA now.  Then again, this year I needed a new tax form because VTSAX had some REIT dividends that were eligible for a QBI deduction, so back to filling out an extra form for $37.  Oh well.  I'll take the $37.

I wouldn't ever put any orders in overnight.  If you're TLHing, trade during the day for ETFs and see where the market is at to see where mutual funds will likely close.  Today, I looked at VTI as a predictor for where VTSAX would likely close.  I was a bit conservative and missed out on selling a few lots that had losses but I did pretty well.  I'd wait and see where we're at tomorrow.  I'm guessing it goes back up because that's generally what it's been doing after large loss days.  But who knows.  We're in week 4 of crazy stock market and anything could happen.  It seems likely to keep trending downwards until coronavirus gets under control.  Which may be a while...

Are you saying I should open a Vanguard account? ;) I've been tempted to but everything I have is currently at Fidelity right now.

In terms of FSPSX in my taxable account, I had gotten the idea from Bogleheads but it sounds like there may not be *enough* foreign tax credit to make much of a difference?
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement#Step_3:_Placing_international_stock_funds_in_the_taxable_account

It would be a *huge* move if I were to move out of the international space in my taxable and I'd have a lot more shuffling to do in that case.

Vapour

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #38 on: March 17, 2020, 05:14:59 PM »
Are you saying I should open a Vanguard account? ;) I've been tempted to but everything I have is currently at Fidelity right now.

In terms of FSPSX in my taxable account, I had gotten the idea from Bogleheads but it sounds like there may not be *enough* foreign tax credit to make much of a difference?
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement#Step_3:_Placing_international_stock_funds_in_the_taxable_account

It would be a *huge* move if I were to move out of the international space in my taxable and I'd have a lot more shuffling to do in that case.
Absolutely nothing wrong with Fidelity.  I use them for a few accounts and am quite happy with them.  They have free trades now so you can get any low fee index fund ETF that you want.  If you like Vanguard, you can get Vanguard ETFs at Fidelity.  No real reason to switch from Fidelity unless you really want mutual funds.  Investing in ETFs over mutual funds should save you a little bit in taxes.

I didn't mean to imply international in taxable is bad.  I just decided to personally move my international holdings to my tax advantaged accounts and hold only US in taxable.  This was mainly for simplicity.  I was able to get down to 1 stock fund in taxable (now 2 since I TLHed yesterday).  At the time, I didn't have enough in international to make it worth the hassle, so I sold it at a loss to buy VTSAX and took the tax credit.  The dividends were only about 70% qualified for VTIAX compared to 92-95% of VTSAX.  I think the foreign tax credit more than makes up for this which is why Bogleheads recommend it in taxable, but it seemed a bit over-hyped.  At the time, I had maybe $10-15k in international funds and my foreign tax credit was all of 20-something dollars.  It just didn't feel worth it.  If you already have a bunch of international in taxable, I'd definitely leave it there.  I'd just look at ETFs like IXUS, IEFA, VXUS, VEU.

It sounds like you have a lot of funds in your taxable account.  Maybe that's because your a better TLHer than I am, but it just sounds complicated dealing with all that.  I advocate for simplicity whenever possible.  Shoot for being in 1-2 US funds and 1-2 international funds in your account that you can TLH between.  I really don't see a reason to be in more than that, unless you start breaking out small/mid/large cap which I prefer not to do in taxable.  But if you have big gains in anything, you may be stuck unless you want to pay the taxes/give up potential credit for losses.

MustacheAndaHalf

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #39 on: March 17, 2020, 11:48:01 PM »
Fidelity offers $0/trade for stocks and ETFs.  If you're comfortable buying ETFs, you can get offerings from many different providers: Schwab, Vanguard, iShares, etc.  All $0/trade.

I wanted to remind people when they tax loss harvest during a crisis, make sure you pick something you can stick with.  A recovery can mean huge gains in a fund/ETF that you planned to hold just 31 days, and then you're stuck with the decision of holding it, or canceling out all the benefits of tax loss harvesting.

That's another reason I like ETFs.  You can pick from Vanguard / Schwab / iShares - and they are even less likely to be "substantially identical" according to the IRS.

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #40 on: March 18, 2020, 04:57:09 AM »
I second this.  I also pulled the trigger today and am the proud owner of some VFIAX!  I think I locked in almost $12k of losses.  That should last me for the rest of my working years (unless we stay stuck in this recession for years then I might be in trouble).  I consolidated almost 3 years worth of weekly buys into one lot as well.  It took forever to pick all those lots.  I'm done with weekly buying!  Hopefully I did everything right.  Vanguard hasn't finished updating yet.  If things are still down in a month, I'll probably transfer back to VTSAX.  Otherwise, VFIAX should be good enough.  Thanks everyone!  This forum is awesome.

I did this exchange in 2018, and Monday at 3:55pm I just exchanged back into VTSAX from the VFIAX that I had. Locked in 4k losses and got back to the total stock market, where I have been wanting to be.

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #41 on: March 18, 2020, 07:59:44 AM »
Anyone have a good resource to help people understand more about TLH? I read the physician on fire post but still feel like I'm not grasping the concept fully.     (https://www.physicianonfire.com/tax-loss-harvesting-vanguard/

We have about 230 shares VTSAX in a taxable brokerage account with Vanguard so wanted to explore TLH and moving the funds to S&P500.

jeromedawg

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #42 on: March 18, 2020, 10:07:55 AM »
Quick question regarding timing (of the day) to place orders. So since the market closes at 4pm EST, considering I'm on PST, would I want to submit the sell and buy orders at 12:30pm PST at the latest?

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #43 on: March 18, 2020, 10:50:46 AM »
Quick question regarding timing (of the day) to place orders. So since the market closes at 4pm EST, considering I'm on PST, would I want to submit the sell and buy orders at 12:30pm PST at the latest?

Yeah, probably. Make sure you leave yourself enough time to buy the new investment too.

jeromedawg

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #44 on: March 18, 2020, 11:00:51 AM »
Quick question regarding timing (of the day) to place orders. So since the market closes at 4pm EST, considering I'm on PST, would I want to submit the sell and buy orders at 12:30pm PST at the latest?

Yeah, probably. Make sure you leave yourself enough time to buy the new investment too.

I'm thinking even 12pm now. But yep, there's an option in Fidelity to "sell all shares and buy new fund" or something like so you can execute the two orders in a single action rather than submitting multiple individual sells and buys.

jeromedawg

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #45 on: March 18, 2020, 11:29:55 AM »
Someone on this thread, https://forum.mrmoneymustache.com/investor-alley/coronavirus-what-are-you-doing-with-your-investments-401ks/450/, mentioned waiting for the # of COVID-19 cases to hit the 10k mark before making any moves and 'speculates' that there will be even more panic by then. Wondering if I should keep holding off and then looking to TLH at *that* point in time or perhaps just sell into a cash position now, wait to see what happens and buy the partner funds in another week or so (although, this starts to sound a lot like gambling/speculating hahaha... what do you guys think?).

So far I've placed a couple orders for my kids UTMAs just to get out of a couple high expense ratio positions my dad purchased into before gifting to them... I guess those are relatively 'low-impact' if anything. The major moves I'd be making are in my more sizable taxable account...
« Last Edit: March 18, 2020, 11:34:59 AM by jeromedawg »

Spitfire

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #46 on: March 18, 2020, 01:15:09 PM »
So far I've placed a couple orders for my kids UTMAs just to get out of a couple high expense ratio positions my dad purchased into before gifting to them... I guess those are relatively 'low-impact' if anything. The major moves I'd be making are in my more sizable taxable account...

Lot's of good ideas floating around, and I like this one too. This is not just a good time for TLH but also for getting out of high fee investments with little/no tax hit (and maybe even a loss).

jeromedawg

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #47 on: March 18, 2020, 02:06:47 PM »
PHEW... so I just executed a bunch of ETF orders and got in right before the 'dinner bell' lol - I basically sold off all my loss positions in 'random' ETFs I had gone into (DVY, HDV, SDY, IXUS, ITOT and IVV) and purchased VXUS. What's annoying, at least with Fidelity, is that the available amount of capital isn't immediately reflected so I had to keep track of and tally up the dollar amount then finally purchase VXUS. Didn't account for that time-sink on top of deciding what to do in general before all this went down.

On that note, I didn't get around to selling my position in FSPSX today but am debating now if I should just sell it off (rather than fund exchange it) and purchase VXUS with the funds from that sale.    If I were to do this, would it mean that I wouldn't be able to buy VXUS until Friday at this point? I thought, from what I read above, that mutual fund orders are executed pretty much at close of market/4pm. So if I place the sell order tomorrow (Thurs) with the intent of using the funds to purchase the VXUS ETF, I basically won't be able to purchase until market open on Friday, right?

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #48 on: March 18, 2020, 03:20:07 PM »
Question -- I TLH'ed for the first time and have realized $10k in long term losses. Do I have to take some of that this year or can I hold it off for future years? I'll be without any taxable income this year due to working abroad and FEIE. Thanks!

You are not permitted to selectively defer using losses.  If you have a loss carryover from 2020 to 2021, you can't just say, "Oh, that's OK, it's more advantageous for me to use it in 2022, so I'll skip using it in 2021."

However, if it doesn't actually get used in any given year (due to FEIE or low taxable income for any other reason), then it will carry forward anyway, as the prior poster noted.

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Re: Tax Loss Harvesting Rule of Thumb?
« Reply #49 on: March 18, 2020, 03:21:45 PM »
No clue on if the kid can use those losses on their future taxes when they make money

They can, with the same proviso in my previous post that they have to use it each year that they are able, and that the loss will carry forward if it's not actually used in any given tax year.