Question regarding TLH

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
ready20
Posts: 71
Joined: Mon Dec 29, 2014 1:10 pm

Question regarding TLH

Post by ready20 » Wed Dec 30, 2015 10:21 am

The above says it all- in my lifetime I haven't had the ability to do so, as almost all taxable investing began in 2009.

My wife and I are in the 39% tax bracket and have ~$3,000 of losses in Total International- they are both short and long term.

Should we sell the total international above to reduce taxable income, or also sell some Total Stock Market to realize gains and have the above off-set them?

Thank you!

livesoft
Posts: 69656
Joined: Thu Mar 01, 2007 8:00 pm

Re: Question regarding TLH

Post by livesoft » Wed Dec 30, 2015 10:23 am

From the information you have given here, I would suggest exchanging the shares of VTIAX that are underwater into shares of VFWAX.

You should not sell shares of VTSAX at a gain to offset any realized losses of VTIAX.
Wiki This signature message sponsored by sscritic: Learn to fish.

Topic Author
ready20
Posts: 71
Joined: Mon Dec 29, 2014 1:10 pm

Re: Question regarding TLH

Post by ready20 » Wed Dec 30, 2015 10:31 am

and using the "loss" to reduce taxable income on 2015 tax return?

livesoft
Posts: 69656
Joined: Thu Mar 01, 2007 8:00 pm

Re: Question regarding TLH

Post by livesoft » Wed Dec 30, 2015 10:38 am

You may have quite a bit more losses than you think. The reason I write this is that you stated that you have both short-term and long-term losses.

You should read mauwong's thread where they found another $8,000 in losses that they did not suspect they had at first: viewtopic.php?f=1&t=180333

Is the cost basis method set to Specific IDentification or Average cost? From mauwong's and other threads, I hope you are convinced that you should be using a cost basis method of Specific ID.
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
powermega
Posts: 1167
Joined: Fri May 16, 2014 12:07 am
Location: Colorado

Re: Question regarding TLH

Post by powermega » Wed Dec 30, 2015 10:41 am

Since your income tax bracket is so high (39%), that $3000 loss is best used to offset taxable income and not the capital gain. That tax savings would be (3000 * 0.39 = $1170). If you used the loss to offset a long-term capital gain, which has a 15% tax rate, then the tax savings would be (3000 * 0.15 = $450).
Even a stopped clock is right twice a day.

Topic Author
ready20
Posts: 71
Joined: Mon Dec 29, 2014 1:10 pm

Re: Question regarding TLH

Post by ready20 » Wed Dec 30, 2015 10:42 am

how do I figure out what best cost basis method to use??

livesoft
Posts: 69656
Joined: Thu Mar 01, 2007 8:00 pm

Re: Question regarding TLH

Post by livesoft » Wed Dec 30, 2015 10:44 am

You don't have to figure it out: Specific Identification is the best cost basis method to use.
Wiki This signature message sponsored by sscritic: Learn to fish.

ThisTimeItsDifferent
Posts: 248
Joined: Sat Jan 31, 2015 2:51 pm

Re: Question regarding TLH

Post by ThisTimeItsDifferent » Wed Dec 30, 2015 11:24 am

powermega wrote:Since your income tax bracket is so high (39%), that $3000 loss is best used to offset taxable income and not the capital gain. That tax savings would be (3000 * 0.39 = $1170). If you used the loss to offset a long-term capital gain, which has a 15% tax rate, then the tax savings would be (3000 * 0.15 = $450).
I'm also planning some TLH today for CY 2015. As my (active non-Vanguard) funds declared large distributions this year, I can sell many lots and realize losses. Unfortunately, they only go against the lower taxed long term capital gains distributions and not against higher taxed income. I was thinking of waiting and saving them for later but would rather realize the loss now and save at least those taxes.

I'd sell more including gains but would put me in the AMT.

One thing to keep in mind, is if you are near the AMT exemption phase-out, then the losses might be more valuable when you are in a year that the losses actually keep you out of that phase-out, rather than if you are below or above the phase out. (I think so...)

Don't you love how complicated taxes are?!

User avatar
powermega
Posts: 1167
Joined: Fri May 16, 2014 12:07 am
Location: Colorado

Re: Question regarding TLH

Post by powermega » Wed Dec 30, 2015 11:31 am

If you can realize some losses to offset those distributions you should. Perhaps realize enough losses to cover all of the gains and distributions and still cover the $3k of regular income? One benefit of realizing losses would be to start converting your portfolio from active funds to more tax-efficient passive index funds.
Even a stopped clock is right twice a day.

ThisTimeItsDifferent
Posts: 248
Joined: Sat Jan 31, 2015 2:51 pm

Re: Question regarding TLH

Post by ThisTimeItsDifferent » Wed Dec 30, 2015 5:14 pm

powermega wrote:If you can realize some losses to offset those distributions you should. Perhaps realize enough losses to cover all of the gains and distributions and still cover the $3k of regular income? One benefit of realizing losses would be to start converting your portfolio from active funds to more tax-efficient passive index funds.
Thanks to you and livesoft.

I did my tax loss harvesting today in covered and uncovered shares. To avoid the ugliness of a wash sale, I also sold the shares reinvested through the December distribution even though they had a slight gain. That reduced my realized loss now a bit compared to had I not reinvested the dividends. Had I not sold those shares, I would not have been able to realize (an equal mount of ) the losses anyway and they just would have been added to the cost basis of the replacement shares to delay that tax benefit.

Now to put those funds in other more tax efficient funds, like Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) to replace T. Rowe Price Equity Income Fund (PRFDX) and VSMAX Vanguard Small-Cap Index Fund Admiral Shares to replace T. Rowe Price Small-Cap Value Fund (PRSVX), or all of it into VTSAX. The indices look much more tax efficient.

I already own VSGAX Vanguard Small-Cap Growth Index Fund Admiral in a Roth but want to not have the "substantially identical" fund in taxable and an IRA because that can cause one to lose TLH opportunities if the IRA makes a purchase after a taxable TLH sale.

Post Reply