Learning about tax loss harvesting

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Learning about tax loss harvesting

Postby Callalily » Fri Dec 21, 2012 12:39 pm

I've read the wiki about tax loss harvesting and want to clarify my thinking:

My understanding is that TLH can be used for both stock and bond funds, and for both mutual funds and ETFs. I bought some bond fund ETFs. Should the price go down a predetermined percentage, I would be able to sell the bond fund ETFs and purchase a similar bond fund ETF while ensuring that the wash sale is not activated. Is there a holding period? I read somewhere about a 1 year rule. Does that only apply to stock funds that have capital gains (which means it wouldn't be tax LOSS harvesting)?
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Re: Learning about tax loss harvesting

Postby livesoft » Fri Dec 21, 2012 12:47 pm

It does apply to bond funds, too, with a caveat. If the bond fund sold at a loss is a tax-exempt bond fund, then there are more rules.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Learning about tax loss harvesting

Postby sscritic » Fri Dec 21, 2012 1:03 pm

Callalily wrote:Is there a holding period? I read somewhere about a 1 year rule. Does that only apply to stock funds that have capital gains (which means it wouldn't be tax LOSS harvesting)?

What one year rule is that? If a buy a share today and sell it tomorrow, I might have a gain, a loss, or no change. The gain is still a gain and the loss is still a loss even if your holding is only for one day. Are you thinking about short vs long?
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Re: Learning about tax loss harvesting

Postby Callalily » Fri Dec 21, 2012 1:04 pm

Fortunately, not tax exempt. I'm not ready for yet more rules.

As for the 1 year rule, something about qualified dividends?
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Re: Learning about tax loss harvesting

Postby livesoft » Fri Dec 21, 2012 1:08 pm

Bond funds will not have qualified dividends to my knowledge.

A rule for qualified dividends for stock funds it that one must own the shares for at least 60 days total in a window around the date of dividend, otherwise the dividends lose "qualified" status. Check exact details with a web search.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Learning about tax loss harvesting

Postby dratkinson » Fri Dec 21, 2012 2:21 pm

1-year rule? Short-term gain/loss becomes long-term, is all that comes to mind.
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Re: Learning about tax loss harvesting

Postby grabiner » Fri Dec 21, 2012 11:28 pm

Callalily wrote:Is there a holding period? I read somewhere about a 1 year rule. Does that only apply to stock funds that have capital gains (which means it wouldn't be tax LOSS harvesting)?


The one-year rule distinguishes short-term from long-term gains; if you hold an asset for more than one year, any gains or losses are long-term. Long-term gains are better than short-term gains because they are taxed at a lower rate. Usually, short-term and long-term losses are equally good, but short-term losses are better if you have both long-term and short-term gains in the same year and not enough total losses to offset both of them.

Thus, if you are going to harvest a loss, it is slightly better to harvest before one year; if you are going to harvest a gain, you need to wait until after one year to get any potential benefit (unless you are in the zero tax bracket).
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