Tax Gain Harvesting
Tax Gain Harvesting
Bogleheads, because my income is lower this year and some capital gains I own are large, I've got the idea to tax gain harvest then reinvest those gains right back into their same investment home. I'm looking for assurance that I understand the mechanics of the process. I may be over analyzing this (Virgo) but my thinking says: sell before ex div date and buy back after div/cap gains are distributed. I've not seen much on the timing aspects of what I'm wanting to do. Maybe selling before ex div date is meaningless? Michael
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Re: Tax Gain Harvesting
I wouldn't take the risk by being out of the market for a day. If you want to play the div/cap gains game, find an appropriate fund/ETF (which you are comfortable holding long term) to switch to so that you'll take the same risks (similar market segment) but miss the ex-dividend days for both funds. It is possible. Or simply TGH into the same fund; that is what I do.MichaelM wrote: ↑Wed Dec 13, 2017 8:45 am Bogleheads, because my income is lower this year and some capital gains I own are large, I've got the idea to tax gain harvest then reinvest those gains right back into their same investment home. I'm looking for assurance that I understand the mechanics of the process. I may be over analyzing this (Virgo) but my thinking says: sell before ex div date and buy back after div/cap gains are distributed. I've not seen much on the timing aspects of what I'm wanting to do. Maybe selling before ex div date is meaningless? Michael
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
Re: Tax Gain Harvesting
Tax gain harvesting is a very sound tax strategy.
Avoiding a dividend is also a good strategy as long as the fund does not go up while you are out of the market.
Avoiding a dividend is also a good strategy as long as the fund does not go up while you are out of the market.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
Re: Tax Gain Harvesting
Thanks for replies. Appreciate the cautions you give. I've pretty much decided that I want to do this just not sure on mechanics of it. After being in the market for a long time I'm not that concerned about being out for a day or two or three although I understand that a lot of the market gains come on just a few trading days in most years but I'm ok being out. Not interested in the ETF s angle at the moment. Just wanting to understand best process with least amount of angst of pulling of my fabulous idea. Thanks, MichaelM
Re: Tax Gain Harvesting
For speculative reasons I can't go into here, this year may be particularly advantageous. Unless you have an average cost basis or plan on liquidating lots based on FIFO in the future. (Look for news on FIFO to learn more).
Mechanically, if at Vanguard, watch out for the short term limits on buying / selling. Your sale to TGH will preclude buying the same fund (except by mail?) for 30 days.
Have you seen seen the wiki and Michael Kitces post?
Mechanically, if at Vanguard, watch out for the short term limits on buying / selling. Your sale to TGH will preclude buying the same fund (except by mail?) for 30 days.
Have you seen seen the wiki and Michael Kitces post?
- triceratop
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Re: Tax Gain Harvesting
"Don't let the tax tail wag the asset allocation dog" is an expression you here around here a lot, but never does it apply more than taking substantial sums out of the market for a short time for tax purposes.MichaelM wrote: ↑Wed Dec 13, 2017 9:23 am Thanks for replies. Appreciate the cautions you give. I've pretty much decided that I want to do this just not sure on mechanics of it. After being in the market for a long time I'm not that concerned about being out for a day or two or three although I understand that a lot of the market gains come on just a few trading days in most years but I'm ok being out. Not interested in the ETF s angle at the moment. Just wanting to understand best process with least amount of angst of pulling of my fabulous idea. Thanks, MichaelM
If you are interested in "best process", it is not to be out of the market. The best process is more like (assuming you are in Vanguard Total Stock Market): exchange VTSAX into 80% VLCAX 20% VSMAX, or even 100% VLCAX.
You keep net exposure essentially the same.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
Re: Tax Gain Harvesting
If I estimated the math right, if the market is up 1% while you're out, it will cost you something like 4 times as much in final value over an investing lifetime if you're young.
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Re: Tax Gain Harvesting
If you don't have to worry about short-term timing rules for your particular investment, I would just sell and rebuy the same thing instantly.MichaelM wrote: ↑Wed Dec 13, 2017 8:45 am Bogleheads, because my income is lower this year and some capital gains I own are large, I've got the idea to tax gain harvest then reinvest those gains right back into their same investment home. I'm looking for assurance that I understand the mechanics of the process. I may be over analyzing this (Virgo) but my thinking says: sell before ex div date and buy back after div/cap gains are distributed. I've not seen much on the timing aspects of what I'm wanting to do. Maybe selling before ex div date is meaningless? Michael
Otherwise, as some people here have explained, you can sell whatever you have and buy something almost identical.
In theory, theory and practice are identical. In practice, they often differ.
Re: Tax Gain Harvesting
Appreciate all the replies. Wow, I thought I had a great idea here but maybe not so much after reading replies. I was thinking to take advantage of 0 cap gain tax up to limits in 15% tax bracket because I had little taxable income this year. FWIW all funds are at Vanguard and have avg cost basis. I thought with the idea to tax gain harvest I could dilute the avg cost basis and take advantage when I sell down the road a few years from now. Maybe it's not worth the $s? I was aware of the trading policy somewhat but could always buy similar fund for 30 days. FWIW I am over 55 years old. Thanks again for all the replies. MichaelM
Re: Tax Gain Harvesting
AnonJohn, Ah, Michael Kitches post. Was not aware of this. Thanks for posting link. This should answer my questions. Thanks to all who read/replied to my post. Hope everyone has a great day. I plan to get this end of year tax planning out of my way as quickly as possible and move on to outdoor activities. MichaelM
Re: Tax Gain Harvesting
Re: Tax Gain Harvesting
Right. I think that I've seen estimates that the market rises 2/3 of the time and drops 1/3 of the time. On the other hand, people shouldn't be stressed out if a small fraction of their portfolio is out of the market for a day.
Re: Tax Gain Harvesting
A back of the envelope calculation shows that the average daily return of the S&P 500 is about 0.03%. So, on average, that is what you are risking by being out of the market for a day - $30 on $100,000 worth of stock.
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Re: Tax Gain Harvesting
.Bogleheads, because my income is lower this year and some capital gains I own are large, I've got the idea to tax gain harvest then reinvest those gains right back into their same investment home
I am doing some tax gain harvesting myself right now. One of my positions was bought by another company resulting in a 11K capital gain. I am trying to obtain another 3k loss to get it up to 14k loss. I am at the highest tax bracket this year due to some company restricted stock maturing, so it is work my while. I am selling the same amount of company stock I just received but the price basis will be the stock I received in earlier years at a higher basis thus a loss.
Be aware, that I don't believe you can sell a particular stock and this buy the same stock back. What you can do is buy a similar stock or ETF back. For instance you can sell BP, but then just buy XOM.
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Re: Tax Gain Harvesting
You are referring to the "wash sale" rule.cyfairslam wrote: ↑Wed Dec 13, 2017 12:19 pm.Bogleheads, because my income is lower this year and some capital gains I own are large, I've got the idea to tax gain harvest then reinvest those gains right back into their same investment home
I am doing some tax gain harvesting myself right now. One of my positions was bought by another company resulting in a 11K capital gain. I am trying to obtain another 3k loss to get it up to 14k loss. I am at the highest tax bracket this year due to some company restricted stock maturing, so it is work my while. I am selling the same amount of company stock I just received but the price basis will be the stock I received in earlier years at a higher basis thus a loss.
Be aware, that I don't believe you can sell a particular stock and this buy the same stock back. What you can do is buy a similar stock or ETF back. For instance you can sell BP, but then just buy XOM.
That applies only to sales that are made at a loss.
Sales that produce a capital gain, even if that capital gain is taxed at 0%, are not subject to that rule.
In theory, theory and practice are identical. In practice, they often differ.
Re: Tax Gain Harvesting
Ah, this subject can get tangled easy enough (wash sale rule) for different types of sales. Interesting to know the avg movement of daily market. I'm only going to sell approx 30/40K total of a couple of mutual funds and reinvest back into similar fund for 30 days then back into original fund. My original question had to do about timing of this in relation to ex div and distributions. I'm not really opposed to realizing the distribution and may just wait until after they are paid out and do this during last days of calendar year. Trying not to make this more complicated than necessary. As I said initially I probably was over thinking. Would not normally be considering this but have almost no taxable income this year & thought I might have an opportunity that I don't normally have. Thanks again to everyones posts. MichaelM
Re: Tax Gain Harvesting
The emotional gain from eliminating eventual taxation on large gains and the obvious desire to buy low and sell high may greatly over ride the possibility of losing some gains in the short run. As many say, evaluate your risk tolerance and respond accordingly.
Tim
Tim
Re: Tax Gain Harvesting
If you hold a fund share when it makes a distribution, the share price will decrease by the amount of the distribution (plus market movements). This will reduce your capital gain, but if the distribution is a qualified dividend, the tax effect is the same.MichaelM wrote: ↑Wed Dec 13, 2017 1:07 pm Ah, this subject can get tangled easy enough (wash sale rule) for different types of sales. Interesting to know the avg movement of daily market. I'm only going to sell approx 30/40K total of a couple of mutual funds and reinvest back into similar fund for 30 days then back into original fund. My original question had to do about timing of this in relation to ex div and distributions.
If you hold a fund share for less than 61 days and you receive a dividend from that share, that dividend becomes non-qualified. (Dividends from shares you hold for 61 or more days become qualified.)
If you hold a fund share for 6 months or less and you receive a long-term capital gain distribution from that share, and you sell for a capital loss, an amount equal to the capital gain is reclassified from short-term loss to long-term loss. If you sell for a gain, it doesn't matter.
Re: Tax Gain Harvesting
I just want to bump this thread. Is anyone planning to do Tax Gain Harvest to take advantage of the new low tax rate?MichaelM wrote: ↑Wed Dec 13, 2017 8:45 am Bogleheads, because my income is lower this year and some capital gains I own are large, I've got the idea to tax gain harvest then reinvest those gains right back into their same investment home. I'm looking for assurance that I understand the mechanics of the process. I may be over analyzing this (Virgo) but my thinking says: sell before ex div date and buy back after div/cap gains are distributed. I've not seen much on the timing aspects of what I'm wanting to do. Maybe selling before ex div date is meaningless? Michael
Time is the ultimate currency.
Re: Tax Gain Harvesting
I plan on tax gain harvesting next year, and probably the year after. In my case, it's motivated more by moving taxable mutual funds to Vanguard, but it doesn't hurt that my wife left her job earlier this year to stay home with kids, giving us some headroom to take capital gains and still keep taxable income around the $77,400 threshold.
More in this thread: viewtopic.php?t=249767
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Re: Tax Gain Harvesting
The tax rates on long term capital gains have not changed.
So there's no extra incentive for tax gain harvesting this year as opposed to last year.
(The new tax law does have effects on deductions. Many taxpayers will likely see significant changes--up or down--in those amounts. Those deductions do affect how much room you have for harvesting gains.)
Re: Tax Gain Harvesting
And it may actually be worse if you pay state taxes on those harvested gains, as the state taxes are unlikely to be deductible from your federal taxes; most gain harvesters now take the standard deduction.House Blend wrote: ↑Tue Jun 19, 2018 4:11 pmThe tax rates on long term capital gains have not changed.
So there's no extra incentive for tax gain harvesting this year as opposed to last year.
Re: Tax Gain Harvesting
Is there a better way to get around Vanguard's short term trading limit, if one wants to harvest tax gains, while staying in the same exact mutual fund (or the closest thing) than to:
1: exchange VTSAX to VLCAX
2: set up automatic exchange of all shares VLCAX to VTSAX
3. next day auto exchange from step 2 executes
4. delete auto exchange
Primarily I'm aiming for least stress on my part to TGH Vanguard Mutual Funds while staying in the market. Thanks in advance!
1: exchange VTSAX to VLCAX
2: set up automatic exchange of all shares VLCAX to VTSAX
3. next day auto exchange from step 2 executes
4. delete auto exchange
Primarily I'm aiming for least stress on my part to TGH Vanguard Mutual Funds while staying in the market. Thanks in advance!
- Earl Lemongrab
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Re: Tax Gain Harvesting
Deleted, because this is gain not loss. Duh.
Last edited by Earl Lemongrab on Fri Nov 23, 2018 4:58 pm, edited 1 time in total.
Re: Tax Gain Harvesting
No wash rules for gains
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Re: Tax Gain Harvesting
Just trying not to trigger Vanguard's frequent trading block to get the original investment back, or better yet, keep it while still realizing the gain, but not sure how best to do it, mechanics wise
Re: Tax Gain Harvesting
If you want to harvest gains out of VTSAX (Total Stock), do a Morningstar 'Growth of $10k' graph for VTSAX and VFIAX (SP500). The lines are essentially superimposed:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D
So just sell one and buy the other. If you care, wait out the frequent trading period and reverse. Personally, their real world performance is close enough that I'm indifferent to which one I hold; I just TLH from one to the other, then TLH back a few years later. I agree with the theoretical argument that VTSAX is better, but don't see enough of a practical difference to care. Which one wins the horse race depends on the start/end dates you pick.
Things are different, of course, if there isn't a close analogue to the fund you want to harvest from.
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D
So just sell one and buy the other. If you care, wait out the frequent trading period and reverse. Personally, their real world performance is close enough that I'm indifferent to which one I hold; I just TLH from one to the other, then TLH back a few years later. I agree with the theoretical argument that VTSAX is better, but don't see enough of a practical difference to care. Which one wins the horse race depends on the start/end dates you pick.
Things are different, of course, if there isn't a close analogue to the fund you want to harvest from.
Re: Tax Gain Harvesting
That's a good strategy, the potential con is that if it gains money, going back could trigger short term gains which I don't want. Going back when there are short term losses would be fine, but I guess it just depends on timing.whomever wrote: ↑Fri Nov 23, 2018 8:10 pm If you want to harvest gains out of VTSAX (Total Stock), do a Morningstar 'Growth of $10k' graph for VTSAX and VFIAX (SP500). The lines are essentially superimposed:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D
So just sell one and buy the other. If you care, wait out the frequent trading period and reverse. Personally, their real world performance is close enough that I'm indifferent to which one I hold; I just TLH from one to the other, then TLH back a few years later. I agree with the theoretical argument that VTSAX is better, but don't see enough of a practical difference to care. Which one wins the horse race depends on the start/end dates you pick.
Things are different, of course, if there isn't a close analogue to the fund you want to harvest from.
What about this strategy:
1. Buy new shares of VTSAX from checking account ACH
2. (same day) exchange pre-existing tax lot shares of VTSAX to VMMXX (Prime money market)
Will that accomplish realizing the tax gain while still ending up in VTSAX, or will vanguard somehow change things on the back end so that the new funds go into VMMXX and the VTSAX tax lots stay exactly the same, rather than being sold to realize the long term gains?