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Tax loss harvesting MUB

Posted: Mon Feb 12, 2018 11:39 pm
by hmw
Due to the recent market drop, I am down several thousands of dollars on my MUB (ishare MUNI bond ETF). I would like to do some tax loss harvesting. What is a reasonable alternative to MUB? Can I sell all my MUB and buy VTEB?

Thanks

Re: Tax loss harvesting MUB

Posted: Mon Feb 12, 2018 11:49 pm
by Tyler Aspect
I would buy a secondary market Treasury Bill or Note that matures in a bit longer than one month. When it matures then buy back MUB.

(added link)
https://www.bogleheads.org/wiki/Wash_sale

Re: Tax loss harvesting MUB

Posted: Tue Feb 13, 2018 12:00 am
by drk
hmw wrote:
Mon Feb 12, 2018 11:39 pm
Due to the recent market drop, I am down several thousands of dollars on my MUB (ishare MUNI bond ETF). I would like to do some tax loss harvesting. What is a reasonable alternative to MUB? Can I sell all my MUB and buy VTEB?

Thanks
Yes, VTEB works. They track the same index, but they both use sampling. You can also use TFI, although it has a longer duration.

Re: Tax loss harvesting MUB

Posted: Tue Feb 13, 2018 2:59 pm
by Tyler Aspect
hmw wrote:
Mon Feb 12, 2018 11:39 pm
Due to the recent market drop, I am down several thousands of dollars on my MUB (ishare MUNI bond ETF). I would like to do some tax loss harvesting. What is a reasonable alternative to MUB? Can I sell all my MUB and buy VTEB?

Thanks
VTEB and MUB tracks the same index: S&P National AMT-Free Municipal Bond Index. You might be subject to "substantially identical" rule if you cross-over into this gray area.

Re: Tax loss harvesting MUB

Posted: Tue Feb 13, 2018 4:29 pm
by Earl Lemongrab
Tyler Aspect wrote:
Tue Feb 13, 2018 2:59 pm
VTEB and MUB tracks the same index: S&P National AMT-Free Municipal Bond Index. You might be subject to "substantially identical" rule if you cross-over into this gray area.
There's never been a reported case that anyone has found of the IRS declaring a wash in a case like this.

Re: Tax loss harvesting MUB

Posted: Tue Feb 13, 2018 10:20 pm
by grabiner
Note that MUB is subject to the 6-month rule. If you sell a share which you bought within the last 6 months for a capital loss, you must reduce the loss by the tax-exempt dividends paid on this share.

(This rule doesn't apply to most muni mutual funds, because those funds accrue dividends for each day you hold them. and thus do not decrease in price by the amount of the dividends they pay. ETFs do not accrue dividends; the shareholder on the record date gets the whole dividend.)

Re: Tax loss harvesting MUB

Posted: Fri Feb 16, 2018 12:07 am
by hmw
grabiner wrote:
Tue Feb 13, 2018 10:20 pm
Note that MUB is subject to the 6-month rule. If you sell a share which you bought within the last 6 months for a capital loss, you must reduce the loss by the tax-exempt dividends paid on this share.

(This rule doesn't apply to most muni mutual funds, because those funds accrue dividends for each day you hold them. and thus do not decrease in price by the amount of the dividends they pay. ETFs do not accrue dividends; the shareholder on the record date gets the whole dividend.)

Hmmm, I didn’t know that. If I did TLH including MUB bought within last 6 month, is it going to be a reporting nightmare with TurboTax? Will the 1099 issued by a major brokerage such as Fidelity or TDA handle this easily?

Thanks

Re: Tax loss harvesting MUB

Posted: Fri Feb 16, 2018 7:33 am
by rkhusky
Earl Lemongrab wrote:
Tue Feb 13, 2018 4:29 pm
Tyler Aspect wrote:
Tue Feb 13, 2018 2:59 pm
VTEB and MUB tracks the same index: S&P National AMT-Free Municipal Bond Index. You might be subject to "substantially identical" rule if you cross-over into this gray area.
There's never been a reported case that anyone has found of the IRS declaring a wash in a case like this.
Has there been a reported case of the IRS declaring a wash sale on anything other than identical replacement shares?

Re: Tax loss harvesting MUB

Posted: Fri Feb 16, 2018 1:58 pm
by Earl Lemongrab
rkhusky wrote:
Fri Feb 16, 2018 7:33 am
Earl Lemongrab wrote:
Tue Feb 13, 2018 4:29 pm
Tyler Aspect wrote:
Tue Feb 13, 2018 2:59 pm
VTEB and MUB tracks the same index: S&P National AMT-Free Municipal Bond Index. You might be subject to "substantially identical" rule if you cross-over into this gray area.
There's never been a reported case that anyone has found of the IRS declaring a wash in a case like this.
Has there been a reported case of the IRS declaring a wash sale on anything other than identical replacement shares?
Not that I've ever seen. That's the safe play for the IRS. Considering how low a profit opportunity it is for them, I don't think there's much chance of anything else.

Re: Tax loss harvesting MUB

Posted: Fri Feb 16, 2018 2:21 pm
by Longdog
Just thought it worth pointing out that that ETF did not go down because of the recent stock market decline. It went down because of rising interest rates. It doesn’t hold stocks.

Re: Tax loss harvesting MUB

Posted: Fri Feb 16, 2018 2:54 pm
by MP123
Earl Lemongrab wrote:
Fri Feb 16, 2018 1:58 pm
rkhusky wrote:
Fri Feb 16, 2018 7:33 am
Earl Lemongrab wrote:
Tue Feb 13, 2018 4:29 pm
Tyler Aspect wrote:
Tue Feb 13, 2018 2:59 pm
VTEB and MUB tracks the same index: S&P National AMT-Free Municipal Bond Index. You might be subject to "substantially identical" rule if you cross-over into this gray area.
There's never been a reported case that anyone has found of the IRS declaring a wash in a case like this.
Has there been a reported case of the IRS declaring a wash sale on anything other than identical replacement shares?
Not that I've ever seen. That's the safe play for the IRS. Considering how low a profit opportunity it is for them, I don't think there's much chance of anything else.
Even if a loss is disallowed due to wash sale you can still add it to your cost basis which just postpones you being able to take it. That's probably why the IRS hasn't put much effort in the clarifying "substantially identical", there really isn't much money in it for them.

Re: Tax loss harvesting MUB

Posted: Fri Feb 16, 2018 3:07 pm
by Earl Lemongrab
MP123 wrote:
Fri Feb 16, 2018 2:54 pm
Earl Lemongrab wrote:
Fri Feb 16, 2018 1:58 pm
Not that I've ever seen. That's the safe play for the IRS. Considering how low a profit opportunity it is for them, I don't think there's much chance of anything else.
Even if a loss is disallowed due to wash sale you can still add it to your cost basis which just postpones you being able to take it. That's probably why the IRS hasn't put much effort in the clarifying "substantially identical", there really isn't much money in it for them.
Right, that's the low profit opportunity. Obviously if the wash is in an IRA, that changes things.