Author Topic: TLH cost/benefit  (Read 359 times)

Travis

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TLH cost/benefit
« on: August 02, 2022, 08:33:09 PM »
When considering whether to do a TLH, is there a way to compute whether there would be any benefit to letting it recovery than taking the loss?  For example, my holdings in VTIAX are showing $8000 in short term losses and $4000 in long term losses as of today.  If I sold those lots tomorrow, let the cash sit for 31 days, then rebought VTIAX, is there a point at which a recovery in price would offset the tax savings?

secondcor521

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Re: TLH cost/benefit
« Reply #1 on: August 02, 2022, 09:22:33 PM »
Yes, but it would depend on several things that would be specific to your situation.

First, your marginal tax rate on your ordinary income, both federal and, if applicable, state, for the next four years.  This matters because if you do nothing else, you can offset $3K of ordinary income per year.  Your tax savings would be your total (federal plus state) marginal rate times the $12K.

Second, your capital gains rate could matter.  If you choose to realize capital gains (up to $12K) to offset your losses, you'll owe $0 in taxes.  If you realized those losses some other time, you might owe capital gains taxes.  Your tax savings, if you choose to realize offsetting gains, would be what capital gains you would have paid but didn't.

You can do any mixture of $0 to $12K in capital gains realization, so your actual savings are probably a mixture of the above two.

Third, there are many things that are impacted by AGI, and the capital losses will lower AGI and thus impact these things.  In general, there are phase outs and income cutoffs for various things, so lowering your AGI might enable you to take advantage of those things.  A lot are tax things, like ACA subsidies, various tax credits and deductions, SS taxation etc.  Other things that can be impacted are financial aid (FAFSA is based on AGI and some other tax items) and IRMAA, etc.

The only way to know for sure is to model the various choices in tax software and see what the results are.

MDM

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Re: TLH cost/benefit
« Reply #2 on: August 02, 2022, 10:22:35 PM »
If I sold those lots tomorrow, let the cash sit for 31 days, then rebought VTIAX....
Compare that with buying VFWAX at the same time you sell VTIAX.

terran

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Re: TLH cost/benefit
« Reply #3 on: August 03, 2022, 07:44:56 PM »
Pretty sure Vanguard lets you buy ETFs commission free like most of the other major brokerages these days. I tend to toggle between VXUS (the ETF version of VTIAX) and IXUS for tax loss harvesting in my taxable account at Fidelity.

Travis

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Re: TLH cost/benefit
« Reply #4 on: August 05, 2022, 12:34:13 PM »
I went ahead with the exchange for VFWAX. $12k in losses locked in, and no mention of a wash so it looks like it worked. 

Years ago I sold some VTSAX for VFIAX to do my first TLH so now my "2 fund portfolio" has 5 funds altogether. Should the plan be to eventually fold these extra funds (that are only here because of TLH) back in, or keep adding to them as other TLH opportunities come up?

oneday

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Re: TLH cost/benefit
« Reply #5 on: August 05, 2022, 08:24:40 PM »
I went ahead with the exchange for VFWAX. $12k in losses locked in, and no mention of a wash so it looks like it worked. 

Years ago I sold some VTSAX for VFIAX to do my first TLH so now my "2 fund portfolio" has 5 funds altogether. Should the plan be to eventually fold these extra funds (that are only here because of TLH) back in, or keep adding to them as other TLH opportunities come up?

I have done my first TLH this year, and plan to keep the additional mutual funds for the next few years just to make future TLH easier administratively.

I will sell them probably after FIRE when income drops and I can pay less tax on any gain. Haven't thought that far ahead, really.

MDM

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Re: TLH cost/benefit
« Reply #6 on: August 05, 2022, 09:25:01 PM »
Should the plan be to eventually fold these extra funds (that are only here because of TLH) back in, or keep adding to them as other TLH opportunities come up?
One aspect of TLH is that you should be prepared to hold the new investment "forever" in case you run into the "problem" that the new investment continues to gain. :)

 

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