Value of tax loss harvesting once FIREd?

[Mr. Green]

This is something I've thought about before and I'm still not sure I understand how it's beneficial. If I tax loss harvesting just because I can, am I really gaining anything? Sure my income for the year is lower but if I'm simply rebuying similar funds (bot not the same) at a lower valuation then I will have to pay more capital gains in the future when I eventually sell them to spend that money. In an environment where my income is closely controlled due to the ACA, having more capital gains per share is not necessarily a good thing. Ultimately I could find myself in a situation where selling the funds I need to live on triggers a bigger gain than I'd like for my income to be at.

It seems like a good tactical tool though. For instance, we'll likely have $1600 more in rental income than I anticipated since the rent for January will likely be paid in this calendar year. Our income is already at the top of the ACA subsidy bracket we chose so this pushes us over. I can harvest $1600 worth of losses to offset this income. This is a better option for someone who is FIRE than contributing money to a tIRA.

Are there other considerations I'm missing, specifically for a FIREd person?

[maizefolk]

If your aim is to spend down to zero I agree it doesn't make sense post-FIRE. But in many cases a person will pass with significant assets.

So to the extent you can produce capital losses during your lifetime in exchange for capital gains which aren't realized during your lifetime, I think you still come out ahead. (And then the basis resets for your heirs.)

[Mr. Green]

If your aim is to spend down to zero I agree it doesn't make sense post-FIRE. But in many cases a person will pass with significant assets.

So to the extent you can produce capital losses during your lifetime in exchange for capital gains which aren't realized during your lifetime, I think you still come out ahead. (And then the basis resets for your heirs.)

I definitely see the value in this once we reach the point in our lives where we're living off tIRA income because RMDs. However, we're currently in our mid-30's and it's likely we will exhaust our taxable accounts before 60, then shift to the Roth IRA rollovers we'd been doing along the way. I will file this away for 35 years from now if we've hit the jackpot and our taxable money has lasted that long. Jeez, I cringe to think about how big the balances of our IRAs would be if that happened, though realistically we'd probably have chosen to spend more money to help out with that.

[terran]

If you can harvest $3000 of losses beyond your gains you can convert that much from traditional to Roth tax free, then in any future year when any conversions plus gains are under about $100k you'll pay no tax on those gains. So you've then converted $3000 from traditional to Roth for nothing. 

[Mr. Green]

If you can harvest $3000 of losses beyond your gains you can convert that much from traditional to Roth tax free, then in any future year when any conversions plus gains are under about $100k you'll pay no tax on those gains. So you've then converted $3000 from traditional to Roth for nothing.

That is definitely a good use of tax loss harvesting, especially since we want to maximize that Roth conversions as much as possible. However, unless we travel internationally for a year our cap. gains space is limited much more than 100k due to the ACA. Still a valid point, though. We're actually considering periodic extended travel as a means to eliminate the cap on income the ACA causes. Those boosts to both cap. gains harvesting at 0% and Roth conversions make a significant difference in the amount of money we could potentially access before age 59.5.

[terran]

... our cap. gains space is limited much more than 100k due to the ACA...

Ah, yes. That old chestnut.

[radram]

This is something I've thought about before and I'm still not sure I understand how it's beneficial. If I tax loss harvesting just because I can, am I really gaining anything? Sure my income for the year is lower but if I'm simply rebuying similar funds (bot not the same) at a lower valuation then I will have to pay more capital gains in the future when I eventually sell them to spend that money. In an environment where my income is closely controlled due to the ACA, having more capital gains per share is not necessarily a good thing. Ultimately I could find myself in a situation where selling the funds I need to live on triggers a bigger gain than I'd like for my income to be at.

It seems like a good tactical tool though. For instance, we'll likely have $1600 more in rental income than I anticipated since the rent for January will likely be paid in this calendar year. Our income is already at the top of the ACA subsidy bracket we chose so this pushes us over. I can harvest $1600 worth of losses to offset this income. This is a better option for someone who is FIRE than contributing money to a tIRA.

Are there other considerations I'm missing, specifically for a FIREd person?

If you go on vacation from 12-29-2018 through 1-3-2019 and have your mail held, you will return with a stack of mail. Some will have arrived in 2018, and some will arrive in 2019. If your January rent check is in this stack, what year did you receive it, and how do you know? Not so much a harvesting question as much as questioning the need to do so.

[MustacheAndaHalf]

I wonder if you have the same problem even if you don't tax loss harvest.  Right now, when you sell assets to live on, do you pick assets with the smallest capital gain?  Over time, your remaining assets would have greater and greater gains.  Meaning, maybe that's a problem worth thinking about even if you don't do any tax loss harvesting.

[Mr. Green]

This is something I've thought about before and I'm still not sure I understand how it's beneficial. If I tax loss harvesting just because I can, am I really gaining anything? Sure my income for the year is lower but if I'm simply rebuying similar funds (bot not the same) at a lower valuation then I will have to pay more capital gains in the future when I eventually sell them to spend that money. In an environment where my income is closely controlled due to the ACA, having more capital gains per share is not necessarily a good thing. Ultimately I could find myself in a situation where selling the funds I need to live on triggers a bigger gain than I'd like for my income to be at.

It seems like a good tactical tool though. For instance, we'll likely have $1600 more in rental income than I anticipated since the rent for January will likely be paid in this calendar year. Our income is already at the top of the ACA subsidy bracket we chose so this pushes us over. I can harvest $1600 worth of losses to offset this income. This is a better option for someone who is FIRE than contributing money to a tIRA.

Are there other considerations I'm missing, specifically for a FIREd person?

If you go on vacation from 12-29-2018 through 1-3-2019 and have your mail held, you will return with a stack of mail. Some will have arrived in 2018, and some will arrive in 2019. If your January rent check is in this stack, what year did you receive it, and how do you know? Not so much a harvesting question as much as questioning the need to do so.

If we were self managing that's probably how I would approach it but we're using a management company that uses electronic transfer for tenant rent so they'll report it the day it comes in. Since rent is due on the first, 9 times out of 10 it shows up on the 30th. As it stands, I had forgotten that we still had our dividends set to automatically reinvest (since we're just starting to get into drawdown in 2019) so I probably just blew my shot at loss harvesting, as our dividends for the fourth quarter have already been declared and reinvested.

I can still use an IRA contribution in January for the 2018 tax year to offset that extra payment, which has the benefit of occurring after the fact so if the payment comes January 1 I can skip it. Not ideal, but at least I still have an option.