Think I messed up a TLH exercise

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
cjclueless
Posts: 37
Joined: Fri Dec 06, 2013 11:18 am

Think I messed up a TLH exercise

Post by cjclueless »

I suspect I am a tax loss harvest knucklehead. I think I created a wash sale due to the fact that a fund I sold had monthly dividends reinvested a couple of weeks ago.

The original plan (working on a family member’s account FWIW) was to sell a good sized position of total US intermediate bond and replace it with total US stock and total international stock. We wanted to get those taxable bonds out of that account as it was throwing off ordinary income. For the time being, over in her tax advantaged accounts, I sold the same equity positions above and purchased a treasury fund that tracks another index from US intermediate. The intended result was to preserve desired asset allocation but improve the tax efficiency.

Am I correct that the fact that she received monthly bond dividend a couple weeks ago (less than 30 days) negates the possibility/benefit of repurchasing US intermediate bond and resetting the basis?

Not the end of the world as the losses were not huge, but it sure would be nice if the wash-y part only applied to the very recent purchase / dividend reinvestment.

Thanks for any feedback.
CJ
magicrat
Posts: 1190
Joined: Sat Nov 29, 2014 6:04 pm

Re: Think I messed up a TLH exercise

Post by magicrat »

Was the interest reinvested or taken in cash? If reinvested, were those shares sold or kept?
Topic Author
cjclueless
Posts: 37
Joined: Fri Dec 06, 2013 11:18 am

Re: Think I messed up a TLH exercise

Post by cjclueless »

They were normal monthly dividends automatically reinvested. So no cash changed hands.

The shares purchased with that reinvestment were sold with the rest of the fund yesterday. Yup.....

Lesson for me -- turn off dividend reinvestment when contemplating TLH. Should have picked up on that. Grrr
livesoft
Posts: 85973
Joined: Thu Mar 01, 2007 7:00 pm

Re: Think I messed up a TLH exercise

Post by livesoft »

cjclueless wrote: Wed Feb 21, 2018 2:28 pmAm I correct that the fact that she received monthly bond dividend a couple weeks ago (less than 30 days) negates the possibility/benefit of repurchasing US intermediate bond and resetting the basis?
No, you are not correct. It reads like you sold the shares that were purchased with the dividend.

In any event, what does the account say happened?
Wiki This signature message sponsored by sscritic: Learn to fish.
magicrat
Posts: 1190
Joined: Sat Nov 29, 2014 6:04 pm

Re: Think I messed up a TLH exercise

Post by magicrat »

cjclueless wrote: Wed Feb 21, 2018 2:40 pm They were normal monthly dividends automatically reinvested. So no cash changed hands.

The shares purchased with that reinvestment were sold with the rest of the fund yesterday. Yup.....

Lesson for me -- turn off dividend reinvestment when contemplating TLH. Should have picked up on that. Grrr
You are fine. If you sold those shares, there are no replacement shares, and therefore no wash sale.
Topic Author
cjclueless
Posts: 37
Joined: Fri Dec 06, 2013 11:18 am

Re: Think I messed up a TLH exercise

Post by cjclueless »

Wait a second.... In doing more research is it perhaps true that the only amount subject to the wash is the recent dividend reinvestment? So, if I continue to keep good records I can still claim the net this next tax time.
magicrat
Posts: 1190
Joined: Sat Nov 29, 2014 6:04 pm

Re: Think I messed up a TLH exercise

Post by magicrat »

cjclueless wrote: Wed Feb 21, 2018 2:44 pm Wait a second.... In doing more research is it perhaps true that the only amount subject to the wash is the recent dividend reinvestment? So, if I continue to keep good records I can still claim the net this next tax time.
Again, there is no wash sale if there are no replacement shares. What date was the sale at a loss? If you look at the account right now, are there any shares of the same fund that were purchased within 30 days of the sale?
NotWhoYouThink
Posts: 3589
Joined: Fri Dec 26, 2014 3:19 pm

Re: Think I messed up a TLH exercise

Post by NotWhoYouThink »

magicrat wrote: Wed Feb 21, 2018 2:52 pm
cjclueless wrote: Wed Feb 21, 2018 2:44 pm Wait a second.... In doing more research is it perhaps true that the only amount subject to the wash is the recent dividend reinvestment? So, if I continue to keep good records I can still claim the net this next tax time.
Again, there is no wash sale if there are no replacement shares. What date was the sale at a loss? If you look at the account right now, are there any shares of the same fund that were purchased within 30 days of the sale?
Not quite. A small part of the transaction was a wash sale, because the 30 day window runs before and after the sale. So OP is correct that the recent dividend reinvestment amount, that was sold before being held for 30 days, was a wash sale. The rest was not.
Never mind, flash brain cramp.
Last edited by NotWhoYouThink on Wed Feb 21, 2018 5:43 pm, edited 1 time in total.
livesoft
Posts: 85973
Joined: Thu Mar 01, 2007 7:00 pm

Re: Think I messed up a TLH exercise

Post by livesoft »

cjclueless wrote: Wed Feb 21, 2018 2:44 pm Wait a second.... In doing more research is it perhaps true that the only amount subject to the wash is the recent dividend reinvestment? So, if I continue to keep good records I can still claim the net this next tax time.
Once again, please LOOK at the account and see what the financial institution documented about any wash sale. I suspect there is really no issue at all.

And if you did not sell the shares that were recently bought, those shares probably have a loss now, too, and can be sold.


Get a grip! Relax! No need to worry!
Wiki This signature message sponsored by sscritic: Learn to fish.
livesoft
Posts: 85973
Joined: Thu Mar 01, 2007 7:00 pm

Re: Think I messed up a TLH exercise

Post by livesoft »

NotWhoYouThink wrote: Wed Feb 21, 2018 3:23 pm So OP is correct that the recent dividend reinvestment amount, that was sold before being held for 30 days, was a wash sale.
What? I don't understand what you are saying.

If I buy shares yesterday and sell them for a loss today, then no wash sale. One doesn't have to hold shares for 30 days to not have a wash sale.
Wiki This signature message sponsored by sscritic: Learn to fish.
Topic Author
cjclueless
Posts: 37
Joined: Fri Dec 06, 2013 11:18 am

Re: Think I messed up a TLH exercise

Post by cjclueless »

The shares were sold yesterday and I immediately bought total US stock and total international stock.

When I look at the Positions tab for that account (at Fidelity), there is no position showing for that bond fund.

Thought I had studied the Wiki on this to death, but I suppose to be on the safe side I can consider that recent reinvestment of dividends as washy but will be cool with the rest.

Thank you all for the help -- was concerned that a tiny bit of the transaction might have spoiled the whole transaction. Sounds like that's not the case.

CJ
User avatar
iceport
Posts: 6049
Joined: Sat Apr 07, 2007 4:29 pm

Re: Think I messed up a TLH exercise

Post by iceport »

NotWhoYouThink wrote: Wed Feb 21, 2018 3:23 pm
magicrat wrote: Wed Feb 21, 2018 2:52 pm
cjclueless wrote: Wed Feb 21, 2018 2:44 pm Wait a second.... In doing more research is it perhaps true that the only amount subject to the wash is the recent dividend reinvestment? So, if I continue to keep good records I can still claim the net this next tax time.
Again, there is no wash sale if there are no replacement shares. What date was the sale at a loss? If you look at the account right now, are there any shares of the same fund that were purchased within 30 days of the sale?
Not quite. A small part of the transaction was a wash sale, because the 30 day window runs before and after the sale. So OP is correct that the recent dividend reinvestment amount, that was sold before being held for 30 days, was a wash sale. The rest was not.
Wash sale rules are confusing, there's no doubt about that. For some of the best, clearest and most concise explanations from an expert available anywhere, please refer to the series of articles at Fairmark.com:

Unfortunately, the header page dedicated to wash sale rules seems to be broken, but scroll down on this page to find links to the 9 wash sale rule articles: Guide to Capital Gains and Losses

What might be of particular interest to the OP is this article: Wash Sales and Replacement Stock.
In general, the wash sale rule prevents you from reporting a loss on the sale of stock if you acquired substantially identical stock on the same day as the sale, or within 30 days before or after that day. But the wash sale rule doesn't apply if the stock you bought wasn't replacement stock.

This rule is best understood through a series of examples. In all of these examples, assume that there are no purchases or sales of stock other than those described.

1: Selling All

On June 1 you buy 200 shares of XYZ for $10,000. On June 12 you sell all 200 shares for $8,000 (a loss of $2,000).

Most people wouldn't even think about applying the wash sale rule here. You know instinctively it shouldn't apply, even though there's a purchase of identical stock less than 31 days before the sale. Your instincts are correct: the wash sale rule doesn't apply because the stock you bought isn't replacement stock for the stock you sold. That's true because you sold the same stock you bought.
I'm surprised the wash sale resources at Fairmark.com aren't routinely included within the first couple of replies to wash sale queries. That would probably help to avoid a lot of back-and-forth confusion.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
NotWhoYouThink
Posts: 3589
Joined: Fri Dec 26, 2014 3:19 pm

Re: Think I messed up a TLH exercise

Post by NotWhoYouThink »

livesoft wrote: Wed Feb 21, 2018 3:53 pm
NotWhoYouThink wrote: Wed Feb 21, 2018 3:23 pm So OP is correct that the recent dividend reinvestment amount, that was sold before being held for 30 days, was a wash sale.
What? I don't understand what you are saying.

If I buy shares yesterday and sell them for a loss today, then no wash sale. One doesn't have to hold shares for 30 days to not have a wash sale.
Sorry, typing while distracted, never mind.
User avatar
iceport
Posts: 6049
Joined: Sat Apr 07, 2007 4:29 pm

Re: Think I messed up a TLH exercise

Post by iceport »

livesoft wrote: Wed Feb 21, 2018 3:51 pm Once again, please LOOK at the account and see what the financial institution documented about any wash sale. I suspect there is really no issue at all.
It's probably not wise to rely on the financial institution's determinations regarding wash sales — particularly in cases like the OP's where the transactions span accounts held at other institutions. There's no way for these institutions to know what related TLH transactions were made at any other institutions.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
livesoft
Posts: 85973
Joined: Thu Mar 01, 2007 7:00 pm

Re: Think I messed up a TLH exercise

Post by livesoft »

^I completely agree. But that does not seem to be the situation here. Selling an intermediate-term bond fund in taxable and buying a Treasury bond fund in another account are not substantially identical.

And the OP now reports (by looking at the account) that ALL shares were sold.
Wiki This signature message sponsored by sscritic: Learn to fish.
Post Reply