[Tax Lost Harvesting Question, non-qualified dividends]

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Financedoc
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Joined: Thu Jun 28, 2018 2:13 pm

[Tax Lost Harvesting Question, non-qualified dividends]

Post by Financedoc » Thu Jun 28, 2018 5:20 pm

[Split into a new thread from: Individual Lots-Tax Lost Harvesting Question --admin LadyGeek]

Hi,

I have a couple of questions about this topic pertaining to the recent dividend distribution and TLH, and wondering if anyone knows the answer. I have looked at several threads and the wiki, and can't find anything even close.

I am also planning on TLH VTIAX for VFWAX as above. I do not currently own any VFWAX. I have several lots of VTIAX with losses that I have held for more than 61 days (and thus the recent dividend is qualified for whatever percentage is declared as qualified). I also have 2 lots with losses that I have held for more than 31 days (thus no wash sale), but less than the 61 days required for the recent dividend to be qualified.

If I sell all lots with losses, does the entire dividend ($750) become ordinary, or just the portion of the dividend that corresponds to the 200 shares from the last 2 tax lots (approx. $70)?

My marginal rate is 35%, and LTCG rate is 18.8%. The losses on the last 2 lots are currently about $300. I plan on using the losses to offset my W2 income. When deciding whether or not to include the last 2 lots, is the calculation 16.2% (difference between marginal rate and LTCG bc dividend becomes ordinary) x $70 (portion of the dividend that becomes ordinary) = $11.34

versus

$300 of losses at 35% marginal rate = 105

So it would be much better to take all of the losses now against my W2 income, and not worry about the dividend becoming ordinary?

Any help would be much appreciated!

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House Blend
Posts: 4454
Joined: Fri May 04, 2007 1:02 pm

Re: [Tax Lost Harvesting Question, non-qualified dividends]

Post by House Blend » Thu Jun 28, 2018 9:13 pm

Financedoc wrote:
Thu Jun 28, 2018 5:20 pm
I am also planning on TLH VTIAX for VFWAX as above. I do not currently own any VFWAX. I have several lots of VTIAX with losses that I have held for more than 61 days (and thus the recent dividend is qualified for whatever percentage is declared as qualified). I also have 2 lots with losses that I have held for more than 31 days (thus no wash sale), but less than the 61 days required for the recent dividend to be qualified.

If I sell all lots with losses, does the entire dividend ($750) become ordinary, or just the portion of the dividend that corresponds to the 200 shares from the last 2 tax lots (approx. $70)?

My marginal rate is 35%, and LTCG rate is 18.8%. The losses on the last 2 lots are currently about $300. I plan on using the losses to offset my W2 income. When deciding whether or not to include the last 2 lots, is the calculation 16.2% (difference between marginal rate and LTCG bc dividend becomes ordinary) x $70 (portion of the dividend that becomes ordinary) = $11.34
Just the dividends produced by those 200 shares are at risk.

The tax calculation is a bit messier, because dividends from VTIAX are not 100% qualified to begin with. Probably 70% or so qualified. So you'll be paying your full tax rate on at least 30% even if you keep the shares.

Also, foreign tax has been withheld from the dividend, but has to be added back when you report your taxable income.

So what looks like about $200 in dividends today is probably going to be $214 or so at tax time, of which (at least) 30% is non-qualifed.

thangngo
Posts: 1138
Joined: Sun Feb 26, 2017 2:08 pm

Re: [Tax Lost Harvesting Question, non-qualified dividends]

Post by thangngo » Thu Jun 28, 2018 9:38 pm

When it does not give you material benefits, it’s better to do nothing. Keep it simple so you don’t kick yourself when you do your tax.

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