Mother of All Tax Loss Harvesting Threads

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livesoft
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Mother of All Tax Loss Harvesting Threads

Post by livesoft »

Is it wise to control the number of separate threads on tax-loss-harvesting?

Maybe everyone with a question can post it to this thread instead of starting another thread? I've basically stopped reading the other TLH threads because the questions are almost the same ones over and over and over (and the answers are the same as well :) )

This thread: http://www.bogleheads.org/forum/viewtop ... hlight=tlh
didn't get much traction, but maybe its thread title was not ALL CAPS! :) :)

Here is the IRS publication 550 section on stock wash sale rules:
http://www.irs.gov/publications/p550/ch04.html#d0e12561

Here is the IRS publication 564 section on mutual fund wash sales rules:
http://www.irs.gov/publications/p564/ar02.html#d0e1880

I hope you at least try to read it before posting a question. Thanks!
iceport wrote:In fact, Fairmark.com is so darned helpful in understanding the wash sale rule nuances, I'd like to request that a link to Fairmark.com's "top page" in explaining the wash sale rule — The Wash Sale Rule be added to the OP.
Last edited by livesoft on Sat Aug 29, 2015 3:09 pm, edited 3 times in total.
InvestingMom
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Post by InvestingMom »

Excellent idea. I will throw in another link I have used recently (provided by a boglehead in a previous post).
http://www.qvmgroup.com/invest/archives/525

Use at your own risk :wink:
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PiperWarrior
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Post by PiperWarrior »

Here are some questions that people might ask:

How does tax loss harvesting work?

See Tax Loss Harvesting.

TLH Alternatives

See the link by InvestingMom above and Approximating Total Stock Market for TSM alternatives.

Are Fund A and Fund B substantially identical?

Sorry, I don't have an authoritative answer. I would guess that various share classes of a given Vanguard fund are substantially identical. Other than that, use your best judgement.

What is a wash sale?

See Wash sale.

What is specific identification of shares? How do I do it?

See Specific Identification of Shares.

Is there anything special I need to know about doing TLH on a tax-exempt bond fund?

Yes. If you have short-term capital loss due to tax-exempt interest from a mutual fund held less than 6 months or less, you cannot claim the loss. You can still claim a part of the loss due to market movements, such a rising interest rate. See Publication 564 (2007), Mutual Fund Distributions and Short-Term Capital Losses for more details.
Last edited by PiperWarrior on Fri Oct 10, 2008 4:50 pm, edited 1 time in total.
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stratton
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Post by stratton »

Anything on TLH muni bond funds?

Paul
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PiperWarrior
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Post by PiperWarrior »

stratton wrote:Anything on TLH muni bond funds?
Great idea! I copied a paragraph from the wiki and added it to the FAQ above. Thanks!
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Post by diasurfer »

I'm going to have about 6K worth of losses in my taxable. Not too shabby compared to the small amount I've actually invested in taxable. :?

Do I have to take 3K in losses this year, and 3K the next, or can I "save" the losses for as long as I want?

I guess recording how much of your loss you use this year, and what is carried over, is something you calculate yourself and then just keep a record of it in case the IRS ever asks? They are mainly just interested in the Schedule D, and on that form I'm going to be able to fill in $3000 under short-term capital losses for the next couple of years, right? (assuming I realize no gains).

Is anyone worried about them changing the laws before you carry-over all your losses?
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Post by livesoft »

diasurfer wrote:Do I have to take 3K in losses this year, and 3K the next, or can I "save" the losses for as long as I want?
You must use up your losses: first to offset capital gains, then $3000 of ordinary income (i.e. not capital gains), then you get to carryover the reminder to next year and repeat. You cannot "save" the losses.

Your carryover is reported to the IRS each year on your Schedule D and gets transferred to your next year Schedule D.

Is anyone worried about them changing the laws before you carry-over all your losses?
I had a 6-figure loss for 2000-2002 that was used up by 2007. I have a 6-figure harvested loss this year that I expect will be used up within 5 years as well. So I am not worried. If anything, I wonder if they will up the $3000 deduction against ordinary income as that number has not been indexed to inflation.

A morbid thought: If you die with losses, they disappear. So instruct your relatives to sell all your losers the day before you die.
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Post by PiperWarrior »

livesoft wrote:Your carryover is reported to the IRS each year on your Schedule D and gets transferred to your next year Schedule D.
In addition to what livesoft said above, may I suggest you read Schedule D and its instructions? It's not a complicated form.
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Post by caklim00 »

livesoft wrote:A morbid thought: If you die with losses, they disappear. So instruct your relatives to sell all your losers the day before you die.
I think that any losses you take with you to your grave. I don't think your heirs can use your losses even if you haven't been able to use them all due to the $3000 limit. Maybe someone can correct me if I'm wrong?
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Post by diasurfer »

I read Schedule D awhile back and that cleared some things up, but I'm not really going to get it until I actually do it. Thanks for the clarifications.
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Post by mithrandir »

PiperWarrior wrote: TLH Alternatives

See the link by InvestingMom above and Approximating Total Stock Market for TSM alternatives.
I'd be careful here. Some of those alternatives do NOT look to satisfy the requirement that the funds must not be substantially similar.

For instance, 80% S&P500/20% Extended is, IMO, substantially similar to 100% TSM. They each will have essentially the same day-to-day return. AFAIC, that means they are substantially similar.

Likewise, advice that you can sell VG S&P 500 for Schwab S&P 500 is playing with fire. The IRS is not dumb, or, at least, I wouldn't risk my money on it.
Wolverine1
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Post by Wolverine1 »

Just sold out of my position in the Vanguard All World Ex US fund today to take advantage of the TLH opportunity this year. To avoid the Vanguard 2% penalty for selling All World Ex US shares held less than 60 days I did not sell that portion of my shares which I acquired over the last month. When I made the sale, I understood that I could not reinvest in this fund or a substantially equilavent fund prior to 31 days without triggering a wash sale.

Question: Since I have purchased shares in the All World Ex US fund within the last 30 days, does that purchase trigger a "wash sale" and disallow the TLH sale I made today? Thanks for your help.

Wolverine1
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livesoft
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Post by livesoft »

Yes, I believe you have made a wash sale. It is not illegal to do a wash sale. You will have to adjust the basis of the equivalent numbers of shares you still hold, so the loss is actually deferred, but not technically "disallowed."
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Post by Wolverine1 »

Thanks livesoft.

Since I sold a significant number of shares today and only have about 50 shares of Vanguard FTSE All World EX US remanining (purchased in the last 30 days) in the account, how can I take advantage of the significant loss on my 2008 tax return? Thanks again.

Wolverine1
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robot
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Post by robot »

Can I avoid the wash sale rule if my 401k contributions automatically purchase similar share classes, but not in the same ?

I'd like to sell VTI in a taxable account, but within the 30 day window I'd have automatically purchased Vanguard S&P500 and Extended Market in my 401k. Are those two combined substantially identical shares to VTI? The purchase would be of different indexes and proportions, but it's not clear to me that it is enough.

My actual plan is to sell the VTI, and hold SPY instead, at least until I need to tax-loss harvest it again. :cry: I just don't want that pesky 401k getting in the way.
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Post by livesoft »

Wolverine1, If you only have 50 shares remaining, your wash sale applies to only 50 of the shares that you sold. That should get you most of the tax deduction. You will have to adjust the basis of those 50 shares. To get all the tax deduction, sell the 50 shares noting their new cost basis to get the rest of the tax deduction. See the publication text cited in the start of this thread.
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livesoft
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Post by livesoft »

robot wrote:Can I avoid the wash sale rule if my 401k contributions automatically purchase similar share classes, but not in the same ?

I'd like to sell VTI in a taxable account, but within the 30 day window I'd have automatically purchased Vanguard S&P500 and Extended Market in my 401k. Are those two combined substantially identical shares to VTI? The purchase would be of different indexes and proportions, but it's not clear to me that it is enough.
No wash sale in this case.
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Post by PiperWarrior »

robot wrote:Can I avoid the wash sale rule if my 401k contributions automatically purchase similar share classes, but not in the same ?
I haven't seen a clarification about this from the IRS. That is, I don't know if the IRS looks at the replacement shares as a whole when you replace Fund A with Fund B and Fund C.
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Post by sscritic »

Here's a TLH question.

If you had $100,000 in losses and no gains this year, would you take all $100,000 now?
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Post by livesoft »

sscritic wrote:Here's a TLH question.

If you had $100,000 in losses and no gains this year, would you take all $100,000 now?
Yes, I would and I have already done so. I like to start each year with no red numbers in my portfolio manager.
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Post by PiperWarrior »

sscritic wrote:If you had $100,000 in losses and no gains this year, would you take all $100,000 now?
I would.

As livesoft mentioned in some other thread, there are few exceptions for TLH.

Here is one example I've seen on this forum. A college student inherited a large taxable account, which now has losses. Since he doesn't have a lot of income, realizing more losses than necessary ends up being wasted. That is, the $3,000 deduction would put his taxable income "negative." Even then, if he graduates in a few years, doing a big TLH may be beneficial because there many enough losses to carry over even after he graduates. I think this is a rare scenario.

Another example. If you are in the 15% bracket or less, and you have both unrealized gains and unrealized losses, you might want to realize losses in one year and "reset" the cost basis of the shares with gains in another year so that you can deduct $3,000 at the ordinary income tax rate rather than offset capital gains. Note that long-term capital gains and qualified dividends are taxed at 0% for those in the 15% bracket or less. Again, losses may go away, so it may be beneficial to take losses first.

I cannot think of any other case at the moment.
RetiredInNH
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Post by RetiredInNH »

Two questions:

1. Selling Vanguard Total International and buying FTSE World ex US seems to me to be allowed, as the two funds use different indexes; in fact one includes Canadian stocks, the other not. Correct??

2. Selling Extended Market and Index 500 and buying Total Stock Market seems pretty close to "substantially identical". But what happens if I sell Index 500 and buy Total Stock Market (clearly NOT substantially identical) and 31 days later sell Extended Market and buy Total Stock Market?

Thanks!
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Post by PiperWarrior »

RetiredInNH wrote:1. Selling Vanguard Total International and buying FTSE World ex US seems to me to be allowed, as the two funds use different indexes; in fact one includes Canadian stocks, the other not. Correct??
Probably, but I haven't seen specific guidelines from the IRS.
RetiredInNH wrote:But what happens if I sell Index 500 and buy Total Stock Market (clearly NOT substantially identical) and 31 days later sell Extended Market and buy Total Stock Market?
That sounds OK, but I haven't seen specific guidelines from the IRS.
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Post by livesoft »

RetiredInNH:

1. Correct.

2a. I do not consider selling total stock market and buying both S&P500 and ExtendedMarket a wash sale. Clearly, S&P500 is not the TSM and clearly ExtendedMarket is not TSM. Therefore, the reverse is also true. Furthermore, it would be nye impossible to get the ratio of the components to exactly match the total stock market. All of this together would make it impossible for the IRS to call this "substantially identical".

2b. Not a wash sale. If it makes you feel more comfortable doing it this way, why not do it this way?

In my opinion, if the IRS wanted to call this a wash sale, it would say so in its publications, in the media, in the courts, and elsewhere. The tax laws should be clear on this. The consequences of this situation going against one are so small as to be neglible -- both for you and for the goverment. Since wash sales are not illegal and since even with a wash sale, the loss is only deferred and not lost, I don't see any issue with not using a very conservative interpretation of the wash sale rule.

Also, in the past I have sold TotalStockMarket and purchased SPY, MDY, and IWM which in aggregate are the total stock market.
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Post by JW-Retired »

Likewise, what about selling a roughly 50/50 combo of Extended Mkt and SP500 and buying roughly a 75/25 combo of Total Stock Market and Total International Stock Mkt? Would that be safely not a wash sale?

I could sell one now and wait 31 days for the other, but I would prefer to do it all at once.
thanks,
JW

I see while writing livesoft answered....thanks
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Post by White Coat Investor »

Someone want to tell me if they think this would be okay?

I'd like to sell TSM and Emerging Markets in my taxable account and buy FTSE Ex-US or All-World Index.

I'd like to sell All-World Index in my daughter's UGMA account and buy TSM or FTSE Ex-US.

What do you think?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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livesoft
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Post by livesoft »

EmergDoc wrote:Someone want to tell me if they think this would be okay?

I'd like to sell TSM and Emerging Markets in my taxable account and buy FTSE Ex-US or All-World Index.

I'd like to sell All-World Index in my daughter's UGMA account and buy TSM or FTSE Ex-US.

What do you think?
If you buy All-World Index in your taxable account and sell All-World Index at a loss in your daughter's UGMA, that would make me uncomfortable.

If you sell TSM at a loss in your taxable account and bought TSM in your daughter's UGMA that would make me uncomfortable. I would do neither of these trades myself.
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Post by sscritic »

livesoft wrote:
EmergDoc wrote:Someone want to tell me if they think this would be okay?

I'd like to sell TSM and Emerging Markets in my taxable account and buy FTSE Ex-US or All-World Index.

I'd like to sell All-World Index in my daughter's UGMA account and buy TSM or FTSE Ex-US.

What do you think?
If you buy All-World Index in your taxable account and sell All-World Index at a loss in your daughter's UGMA, that would make me uncomfortable.

If you sell TSM at a loss in your taxable account and bought TSM in your daughter's UGMA that would make me uncomfortable. I would do neither of these trades myself.
To me, it depends on how you view yourself as custodian of your daughter's funds. If you are determined to hand over her money to her when she turns 18 and allow her to blow it all on a car, vacations, and her friends, then I don't see the problem. Your money is yours, and her money is hers; you are just the custodian of her money until she is 18 and need to do your best for her benefit. If you think that the changes are best for her portfolio independent of what you do in your portfolio, then go for it.

On the other hand, if you think that her money is really your money and the UGMA is just a convenient tax dodge, then ... well, I wouldn't do that, so I don't know what to tell you.
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Post by White Coat Investor »

livesoft wrote:
EmergDoc wrote:Someone want to tell me if they think this would be okay?

I'd like to sell TSM and Emerging Markets in my taxable account and buy FTSE Ex-US or All-World Index.

I'd like to sell All-World Index in my daughter's UGMA account and buy TSM or FTSE Ex-US.

What do you think?
If you buy All-World Index in your taxable account and sell All-World Index at a loss in your daughter's UGMA, that would make me uncomfortable.

If you sell TSM at a loss in your taxable account and bought TSM in your daughter's UGMA that would make me uncomfortable. I would do neither of these trades myself.
This is tricky business isn't it. I guess all I'm risking is that the IRS will disallow it if they audit me, so I'd owe taxes, penalties, and interest, right?

I do view the money as my daughter's, but I don't see how my views on her UGMA have anything to do with whether it is legal or not. The money is legally my daughter's. I like the funds I currently hold, but would like to take advantage of some tax loss harvesting and only want to buy into other funds I wouldn't mind holding for a long time. I can rebalance just about anything by moving stuff around in my much larger tax-protected accounts. I suppose I could go into TSM with the UGMA money, I wouldn't mind holding that forever. I could do FTSE Ex-US with my taxable money, and if it goes up substantially before I can go back to TSM in a month or two, I can donate the shares to charity in December (it's about an amount I was planning to donate anyway.)

You really think the IRS would view selling TSM in my account and buying TSM in my daughter's account as a problem? Is there any kind of a resource where I can check and see if this is okay or not? I mean, the way it looks to me, it is two different people doing this. The custodian of my daughter's account could just as easily be her mother or grandmother, no?
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livesoft
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Post by livesoft »

In the time it took you to think about and type your response you could've come up with a couple of alternate replacement investments that are just as good. So why bother to force the issue?
RetiredInNH
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Post by RetiredInNH »

Thanks, PiperWarrior and livesoft!
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TLH and cost basis

Post by gatorking »

In Jan 2008 I sold some shares of TSM, and specified in a letter to VG that these shares come from one lot. Last week I sold all remaining shares for TLH.
The question is, (1) can I use average cost basis when I file taxes since I haven't used individual lots yet in my tax forms. (2) are the two equivalent mathematically in this case?


Thanks.
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livesoft
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Re: TLH and cost basis

Post by livesoft »

gatorking wrote:In Jan 2008 I sold some shares of TSM, and specified in a letter to VG that these shares come from one lot. Last week I sold all remaining shares for TLH.
The question is, (1) can I use average cost basis when I file taxes since I haven't used individual lots yet in my tax forms. (2) are the two equivalent mathematically in this case?


Thanks.
In this case the two are mathemetically equivalent. I would recommend you NOT use average cost basis with mutual funds sales on your Schedule D ever.

You didn't write when you acquired the shares or when you received distributions. You may have to divide up the sales into short-term and long-term. I find that easiest when you don't use average cost basis. The IRS has a pretty good discussion of how to fill out a Schedule D in its publication 554 available at http://www.irs.gov/publications/index.html
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question about carry forward

Post by tibbitts »

Here is one example I've seen on this forum. A college student inherited a large taxable account, which now has losses. Since he doesn't have a lot of income, realizing more losses than necessary ends up being wasted. That is, the $3,000 deduction would put his taxable income "negative." Even then, if he graduates in a few years, doing a big TLH may be beneficial because there many enough losses to carry over even after he graduates. I think this is a rare scenario.
This is very common and not limited to students.

I had a $4500 loss one year to take against ordinary income, but lost $1500 of it due to not having enough income the following year.

I assume, but would like clarification, that every year of insufficient income to take a loss against ordinary income sacrifices $3k of your initial loss, but you can pick up your remaining losses (less $3k for each year you either took or missed out on the deduction) again after any number of years. But since that didn't apply to me, I didn't work through that example, so maybe someone can clarify that you don't lose the entire rest of your loss by taking any number of years "off."

Paul
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Post by livesoft »

I don't know if it would be applicable in tibbitts case, but if I had no income taxes to pay in any year, I would convert some of my traditional IRA to a Roth IRA. That is, I would try to create some income that would be taxable to offset the capital loss.
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What to do with realized losses?

Post by stan1 »

Having tax loss harvested religiously since January, I am now looking at the prospect of at least 15 years of $3K/yr writeoffs. Other than writing my Congressperson asking for an increase in the amount of realized losses that can be claimed each year, are there any creative ideas on how to manage my taxable portfolio given a large carryover loss?

One idea I had was increasing my equity allocation by 5% for a few years and sell after the market has gone back up 10-20% taking the long term gain to offset the losses? Of course, there is a risk that the market could go down further and not recover 10-20% within a few years.
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Post by dbr »

EVentually one should expect stocks to recover. When that happens and you need to rebalance in your taxable account, those carryover losses may be very helpful.
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Post by stan1 »

dbr wrote:EVentually one should expect stocks to recover. When that happens and you need to rebalance in your taxable account, those carryover losses may be very helpful.
My IPS says that I will never sell index funds/ETFs in my taxable account at a gain until I need income during retirement. I rebalance with new contributions and by making changes to my equity holdings in my tax deferred accounts. I'll have to think some more about whether I should change my IPS and take gains that I wouldn't otherwise have to in order to burn through the loss quicker. Thanks for the input.
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what many years can I carry over the tax loss?

Post by tyrannosaur »

For example if I sell and have a loss of $30000, can I deduct 3000 against ordinary income for the next 10 years (counting no other gain or loss)?
Thx
Chuck
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Re: what many years can I carry over the tax loss?

Post by stan1 »

tyrannosaur wrote:For example if I sell and have a loss of $30000, can I deduct 3000 against ordinary income for the next 10 years (counting no other gain or loss)?
Thx
Chuck
Yes, that is correct. But it is like giving the IRS a 10 year, $30K loan with no interest or adjustment for inflation. I'm trying to figure out if anyone has some strategies on how to get the "loan" paid back quicker.
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Re: what many years can I carry over the tax loss?

Post by sscritic »

stan1 wrote:
tyrannosaur wrote:For example if I sell and have a loss of $30000, can I deduct 3000 against ordinary income for the next 10 years (counting no other gain or loss)?
Thx
Chuck
Yes, that is correct. But it is like giving the IRS a 10 year, $30K loan with no interest or adjustment for inflation. I'm trying to figure out if anyone has some strategies on how to get the "loan" paid back quicker.
Who is loaning to whom? The usual advice is to TLH because you reduce your taxes now and don't have to pay the IRS until you sell at a gain years later. The usual example has you selling after 10 years. In this case, you are borrowing this year's tax savings for 10 years, next year's for 9 years, etc. until you sell at a gain and pay the taxes at the end of the 10 years.

When you TLH, you are borrowing from the IRS. In this case, your loan is the tax saved on $3000 a year for 10 years, but it is still a loan from the IRS to you.
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livesoft
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Post by livesoft »

Somehow from 2003-2007 I used up a 6-figure harvested tax loss. So I am not concerned that I will now have a carryover that is twice as large in 2008.

In early retirement we will be living off our taxable investments, so we should be selling some investments with capital gains. Thus with the carryover losses, we will have virtually no income. This means that we can in turn convert 401k and tIRA assets to Roth IRAs at a tax rate from 0% to up to 15%. This means that some of our 401k contributions - which were not taxed at 33% - are tax-free when we withdraw them. That's better than contributing to a Roth401k and better than a Roth IRA.
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Re: what many years can I carry over the tax loss?

Post by stan1 »

sscritic wrote:
stan1 wrote:
tyrannosaur wrote:For example if I sell and have a loss of $30000, can I deduct 3000 against ordinary income for the next 10 years (counting no other gain or loss)?
Thx
Chuck
Yes, that is correct. But it is like giving the IRS a 10 year, $30K loan with no interest or adjustment for inflation. I'm trying to figure out if anyone has some strategies on how to get the "loan" paid back quicker.
Who is loaning to whom? The usual advice is to TLH because you reduce your taxes now and don't have to pay the IRS until you sell at a gain years later. The usual example has you selling after 10 years. In this case, you are borrowing this year's tax savings for 10 years, next year's for 9 years, etc. until you sell at a gain and pay the taxes at the end of the 10 years.

When you TLH, you are borrowing from the IRS. In this case, your loan is the tax saved on $3000 a year for 10 years, but it is still a loan from the IRS to you.
We are getting off topic over semantics that aren't really relevant and can be argued either way indefinitely without a consensus. I'd like to keep the discussion focused on how to manage a large carryover loss. Does it make sense to just slowly work it down over decades, or are there more active strategies that could be beneficial?

Livesoft -- sounds like you worked your six figure loss down quickly by selling equities with gains. Were you converting from active to passive funds or was there another reason you were selling funds with long term gains? I know you aren't retired yet so I'm assuming you were not selling for income.
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Tax-Loss Harvesting--a loan?

Post by Taylor Larimore »

When you TLH, you are borrowing from the IRS. In this case, your loan is the tax saved on $3000 a year for 10 years, but it is still a loan from the IRS to you.


Not necessarily. Let's take a simple example:

1. Joe invests $100,000 in S&P 500 Index Fund at market top.

2. Joe sells for $70,000 in bear market resulting in a $30,000 tax-loss.

3. Joe has no other capital-gains but takes a $3,000 tax-loss against ordinary income for the next 10 years. In a 25% tax-bracket Joe saves $7,500 in taxes (25% X $30,000).

Result: No "loan" from IRS--only savings.

Edited to show computation
Best wishes.
Taylor
Last edited by Taylor Larimore on Sun Oct 12, 2008 2:11 pm, edited 1 time in total.
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Post by White Coat Investor »

livesoft wrote:In the time it took you to think about and type your response you could've come up with a couple of alternate replacement investments that are just as good. So why bother to force the issue?
Fair enough. I think maybe I'll just go FTSE with both of them to avoid the issue for now. If it goes up before I can exchange back to TSM in my account I'll just use it for charitable donations. If it goes up in the UGMA, I'll just add TSM rather than using All-World Index.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
tibbitts
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good idea, but...

Post by tibbitts »

livesoft wrote:I don't know if it would be applicable in tibbitts case, but if I had no income taxes to pay in any year, I would convert some of my traditional IRA to a Roth IRA. That is, I would try to create some income that would be taxable to offset the capital loss.
That's a good suggestion, and one year I did indeed do an IRA conversion up to the limit where we would have to pay income tax. But one year I didn't, with more than $1000 in losses left over, and I can't remember why. It seems like there must have been a reason, but maybe I just made a mistake.

Paul
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Post by dragant »

Quick question: If I sell Vanguard Total Stock Market Index Fund and buy the ETF, would the wash sale apply?
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Post by White Coat Investor »

dragant wrote:Quick question: If I sell Vanguard Total Stock Market Index Fund and buy the ETF, would the wash sale apply?
Definitely.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Post by White Coat Investor »

All right, I think I found the answer to my question. I cannot sell a fund in my daughter's UGMA and buy it in my taxable account. According to Pub 544, page 21:
A loss on the sale or exchange of property between related persons is not deductible. This applies to both direct and indirect transactions...
The instructions for the 1040 Schedule D page D-2 say:
Do not deduct a loss from the direct or indirect sale or exchange of property between any of the following.
Members of a family.
I agree that the spirit of the law doesn't allow you to sell a fund in taxable and buy it in an IRA, but does it actually talk about this anywhere in an IRS publication? According to an accountant I just spoke with, not only is it legal to sell a fund in taxable and buy it in an IRA, but there is no way for the IRS to determine what you hold in your IRA at any given time anyway so you would be extremely unlikely to be caught even if this were illegal.
Last edited by White Coat Investor on Sun Oct 12, 2008 2:20 pm, edited 1 time in total.
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Rondoro
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so i can ..............

Post by Rondoro »

:?: i think i understand this, but just want to double check and ask specifically about my own situation before i pull the trigger...........

i'm retired and in the 15% tax bracket..i have no capital gains this year.

if i sell Vanguard FTSE All-World ex-US Index Fund and realize a loss of $10,000 and then buy $10,000 of Vanguard Total Stock Market Index(totally different type of fund), i will have harvested $10,000 of losses and i can then take $3,000 tax-loss against ordinary income for the next 3 years.

thanks...i'm new at this and appreciate the help.
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