TLH before year end or wait

[camradal]

I’ve recently started investing into total market fund (FSKAX) in Fidelity due to recent unexpected windfall.

Put about 20k in October and 10k in November and another 20k in December. Now the investments are down 15% or so, but I would want to stay in the market, of course.

Was wondering if it would be beneficial or even possible to tax loss harvest before the end of the year? I.e., the recent purchase for the fund was only 2 weeks ago. Would it trigger wash sale to sell all shares and get into a different fund?

Other option is to wait couple more weeks, but then it’s the next year, and I doubt I’ll have as much capital gains to offset next year.

Would love any suggestions.

[ILikeDividends]

Was wondering if it would be beneficial or even possible to tax loss harvest before the end of the year? I.e., the recent purchase for the fund was only 2 weeks ago. Would it trigger wash sale to sell all shares and get into a different fund?

My unqualified understanding is that it wouldn't trigger a wash sale.  Check out this link for funds that are roughly equivalent in performance, but managed under a different ticker symbol.

https://support.wealthfront.com/hc/en-us/articles/210999343-What-ETFs-does-Wealthfront-use-to-implement-tax-loss-harvesting-

[MustacheAndaHalf]

If you sell some of the shares, it could trigger a wash sale with the recent purchase.  The old shares being sold are "washed out" by the recently purchased shares.  But if you sell everything, there's no wash sale since you even sold the recently purchased shares.

The next step is buying something that is not "substantially identical" which the IRS leaves up to us to guess.  You might buy iShares Russell 1000 (IWB), which holds the 1000 largest companies.  I think iShares cost $0/trade at Fidelity?  A total stock market has small caps where the Russell 1000 does not.  And if it ever came up, I'd also point out they are run by different companies (Fidelity vs iShares), since any difference probably helps in arguing they are not substantially identical.

Speaking of which, has anyone ever had to argue this with the IRS?

[BicycleB]

Short answer - possible before the end of the year, but some judgment is involved in whether it's beneficial, so research carefully and decide for yourself; I am not offering professional advice.  :)

Nice consumer level summary of some relevant tax info:
https://turbotax.intuit.com/tax-tips/investments-and-taxes/capital-gains-and-losses/L7GF1ouP8

Authoritative summary of some relevant tax info:
https://www.irs.gov/newsroom/capital-gains-and-losses-10-helpful-facts-to-know

I read the above links to mean that you can get a tax benefit by selling before the end of the year, but that there are trade-offs and consequences. It looks like you could sell enough to harvest a $3000 loss and apply it against other 2018 income. The other posters' remarks about wash sales are very important - plan your moves so that you do not trigger a wash sale.

https://www.investopedia.com/terms/w/washsalerule.asp
https://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02
https://finance.zacks.com/substantially-identical-mutual-funds-5850.html

Also https://www.schwab.com/resource-center/insights/content/a-primer-on-wash-sales

[Aggie1999]

I’ve recently started investing into total market fund (FSKAX) in Fidelity due to recent unexpected windfall.

Put about 20k in October and 10k in November and another 20k in December. Now the investments are down 15% or so, but I would want to stay in the market, of course.

Was wondering if it would be beneficial or even possible to tax loss harvest before the end of the year? I.e., the recent purchase for the fund was only 2 weeks ago. Would it trigger wash sale to sell all shares and get into a different fund?

Other option is to wait couple more weeks, but then it’s the next year, and I doubt I’ll have as much capital gains to offset next year.

Would love any suggestions.

Would not be a wash sale as long as you sold any shares bought within the last 30 days. Based on your description, I would imagine all of the shares of your $50k stake are down. Depending on your tax bracket, amount of capital gains, etc this is probably a good time to TLH. Flip side is think about the $3k per year you can deduct against ordinary income from a capital loss. Which would be more beneficial, deducting the loss against the capital gains or ordinary income?

Regardless of the tax loss harvesting aspect, it's probably a good idea to get out of FSKAX mutual fund and into an ETF. With the exception of Vanguard, mututal funds throw off long and short term capital gains every year that you will be taxed on. An ETF does not. Depends on your tax bracket if dealing with ETF's vs a mutual fund is worth it.

[camradal]

Which would be more beneficial, deducting the loss against the capital gains or ordinary income?

Yup, all 50k lots were down. Selling them mostly offset other short term capital gains.

Regardless of the tax loss harvesting aspect, it's probably a good idea to get out of FSKAX mutual fund and into an ETF.

Good idea. There are also new Fidelity Zero funds that track different index, but doesn't seem like they come in ETF flavor.

[MustacheAndaHalf]

If you have other capital gains, the capital losses go against those first.  Only if $-3k in losses remains can you subtract it from income.  And if you have even more losses, you carry them over to next year.  If you have too few capital gains again next year, you could again subtract $-3k from income.

Tax loss harvesting now vs later only matters if you're trying to time which years you have capital gains.  In the absence of a specific plan, I'd go with selling at a loss this year.  Well, Monday to be specific - last trading day of the year.

Even if you're paying an expense ratio on another ETF, consider you only have to hold it just over a month (to avoid a wash sale).  So an ETF that charges $15/year per $50,000 (0.03% expense ratio) will only cost $1.50 to hold for 36 days.  And from that $1.50 you gain thousands in taxable losses, and save hundreds on taxes.  You pay a few dollars to get a loan for hundreds of dollars.

It's also worth checking which ETFs are $0/trade at your brokerage.  Fidelity and Schwab have different groups of funds (but Vanguard charges $0/trade for most ETFs now).