Did I screwup and create a wash sale? First try at tax loss harvest

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ishkadetto
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Did I screwup and create a wash sale? First try at tax loss harvest

Post by ishkadetto » Mon Jul 09, 2018 12:18 am

Well I may have gotten too excited rearranging my accounts the other week... here's what I did:

Every two weeks for the last year I made an automatic purchase of VTIAX, most recent being:

06/04/2018: Automatic purchase of some VTIAX
06/18/2018: Automatic purchase of some VTIAX
06/21/2018: VTIAX dividend reinvestment
07/02/2018: Sold some VTIAX lots for a loss

Did I screw up, and if so, can I fix it? I turned off reinvestment but somehow in my excitement to tax loss harvest for the first time totally missed the 31-days prior to sale rule. D'oh! :(

Edit: If I sell the lots purchased on 6/5, 6/19, and the dividends from 6/21 in the morning (7/21) does this fix my screwup? Or has too much time passed?

Edit 2: Most all of the shares I own in fact are at a loss, if I just up and exchanged my entire VTIAX for VFWAX would that fix my screwup?

Thank you for your advice and sorry for the panic. That's the last time I jump into something without exhaustive research first :oops:

I should clarify that I know its not illegal to make a wash sale, but my main concerns are 1) I would like to be able to deduct the losses from my gains of other individual stocks I sold this year/against wages if the loss is enough, and 2) I would like to avoid a situation where I've made my life/taxes more complicated with a wash sale/keeping track of more things when I was trying to make it less complicated/a simple deduction!

Edit 3:
On going back into my transaction history its even worse than I originally thought. I converted 11k worth of VTSAX to VTIAX in my spouse's Roth IRA within 30 days of the 07/02/2018 sale where I was trying to harvest $3300 of losses. Looks like I may lose out entirely on this then? If my tax software can't do it for me (doesn't look like any tax software will) is this something I should try to attempt to report myself or should I just take it all to H&R Block in the spring? Can I sell the remaining VTIAX in 30 days and capture those approx. $3400k losses, or do I need to stop for the year cause the $11k purchase screwed everything up for 2018? So mad at myself right now. :x
Last edited by ishkadetto on Mon Jul 09, 2018 11:26 am, edited 1 time in total.

ivk5
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ivk5 » Mon Jul 09, 2018 5:14 am

Yes you'll have a partial wash sale with basis adjustment for the June lots. (Depending on your broker, online interface may show you the adjusted basis calculation for those lots, if the transactions were all in same account.)

Yes, you could recover by TLHing the June lots now and/or TLHing the entire position.

ishkadetto
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ishkadetto » Mon Jul 09, 2018 8:58 am

ivk5 wrote:
Mon Jul 09, 2018 5:14 am
Yes you'll have a partial wash sale with basis adjustment for the June lots. (Depending on your broker, online interface may show you the adjusted basis calculation for those lots, if the transactions were all in same account.)

Yes, you could recover by TLHing the June lots now and/or TLHing the entire position.
My broker is Vanguard, all transactions in the same account.
I'm not sure where to go to try to see the adjusted basis calculation though, is it possible to do with Vanguard?

I didn't know if it was too late to recover if I harvested those June amounts now because it's been more than 30 days since I bought them.
For future clarity, would the cut-off date to the recover from a mistake like this be 30 days from the date of the initial attempt to TLH (in this case 07/02/2018)?

Thank you!

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BL
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by BL » Mon Jul 09, 2018 9:07 am

Why not sell everything now if it is all at a loss? You might as well get the biggest loss available.

Yes, definitely sell the latest month's purchases to avoid a wash sale, especially since they are losses.

If it all is sold in the same year, the "wash" should correct itself and it wouldn't matter, AFAIK.

Edit:
On your Vanguard Balance and Holdings page, click on Cost Basis in the headings over your taxable account. That should get you to the page where you can Show Details to look at separate lots (assuming you have specified Specific Id as your method).
Last edited by BL on Mon Jul 09, 2018 9:12 am, edited 1 time in total.

ishkadetto
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ishkadetto » Mon Jul 09, 2018 9:08 am

ishkadetto wrote:
Mon Jul 09, 2018 12:18 am
06/04/2018: Automatic purchase of some VTIAX
06/18/2018: Automatic purchase of some VTIAX
06/21/2018: VTIAX dividend reinvestment
07/02/2018: Sold some VTIAX lots for a loss
It just occurred to me this morning that my Roth IRA with Vanguard holds VTIAX and therefore also received a dividend on 06/21/2018. Is this an additional complicating factor? Or not a problem because its tax-deferred?

ishkadetto
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ishkadetto » Mon Jul 09, 2018 9:10 am

BL wrote:
Mon Jul 09, 2018 9:07 am
Why not sell everything now if it is all at a loss? You might as well get the biggest loss available.

Yes, definitely sell the latest month's purchases to avoid a wash sale, especially since they are losses.

If it all is sold in the same year, the "wash" should correct itself and it wouldn't matter, AFAIK.
I'm leaning towards doing this. If the market is down next year, I can swap everything back to VTIAX at that point. If it's up... I just stay with VFWAX I suppose.

Thank you for your reply

MotoTrojan
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by MotoTrojan » Mon Jul 09, 2018 9:11 am

ishkadetto wrote:
Mon Jul 09, 2018 9:08 am
ishkadetto wrote:
Mon Jul 09, 2018 12:18 am
06/04/2018: Automatic purchase of some VTIAX
06/18/2018: Automatic purchase of some VTIAX
06/21/2018: VTIAX dividend reinvestment
07/02/2018: Sold some VTIAX lots for a loss
It just occurred to me this morning that my Roth IRA with Vanguard holds VTIAX and therefore also received a dividend on 06/21/2018. Is this an additional complicating factor? Or not a problem because its tax-deferred?
Additional complication. I believe selling the lot would correct.

ishkadetto
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ishkadetto » Mon Jul 09, 2018 9:21 am

BL wrote:
Mon Jul 09, 2018 9:07 am
Edit:
On your Vanguard Balance and Holdings page, click on Cost Basis in the headings over your taxable account. That should get you to the page where you can Show Details to look at separate lots (assuming you have specified Specific Id as your method).
Perfect, thank you thank you thank you that helps so much, I found it! :D It does show "The shares in this lot are adjusted by a wash sale." for the lots I bought in June. I have a whopping $100 in long term gains spread among a few old lots and $3300 of losses among everything from 9/2017 onwards.

ishkadetto
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ishkadetto » Mon Jul 09, 2018 9:26 am

MotoTrojan wrote:
Mon Jul 09, 2018 9:11 am
ishkadetto wrote:
Mon Jul 09, 2018 9:08 am
It just occurred to me this morning that my Roth IRA with Vanguard holds VTIAX and therefore also received a dividend on 06/21/2018. Is this an additional complicating factor? Or not a problem because its tax-deferred?
Additional complication. I believe selling the lot would correct.
Hmmm looks like I am unable to sell the one lot from dividends in the Roth IRA due to "Vanguard's cost basis service offers average cost information only for IRAs established after July 11, 2011." Its not showing me individual SpecID like in the taxable.

ivk5
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ivk5 » Mon Jul 09, 2018 9:45 am

MotoTrojan wrote:
Mon Jul 09, 2018 9:11 am
ishkadetto wrote:
Mon Jul 09, 2018 9:08 am
ishkadetto wrote:
Mon Jul 09, 2018 12:18 am
06/04/2018: Automatic purchase of some VTIAX
06/18/2018: Automatic purchase of some VTIAX
06/21/2018: VTIAX dividend reinvestment
07/02/2018: Sold some VTIAX lots for a loss
It just occurred to me this morning that my Roth IRA with Vanguard holds VTIAX and therefore also received a dividend on 06/21/2018. Is this an additional complicating factor? Or not a problem because its tax-deferred?
Additional complication. I believe selling the lot would correct.
No. The portion of the disallowed loss that's tied to this lot is disallowed forever and can never be realized, since you do not have CG gains/losses in tax-advantages accts. Unfortunately you will have to account for this via manual adjustment on your Schedule D. Fortunately it's likely to be a pretty trivial amount and you can chalk it up to a lesson learned.

Search for livesoft's TLH threads, especially his real-time example, for a good tutorial.

ishkadetto
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ishkadetto » Mon Jul 09, 2018 11:22 am

ivk5 wrote:
Mon Jul 09, 2018 9:45 am
MotoTrojan wrote:
Mon Jul 09, 2018 9:11 am
ishkadetto wrote:
Mon Jul 09, 2018 9:08 am

It just occurred to me this morning that my Roth IRA with Vanguard holds VTIAX and therefore also received a dividend on 06/21/2018. Is this an additional complicating factor? Or not a problem because its tax-deferred?
Additional complication. I believe selling the lot would correct.
No. The portion of the disallowed loss that's tied to this lot is disallowed forever and can never be realized, since you do not have CG gains/losses in tax-advantages accts. Unfortunately you will have to account for this via manual adjustment on your Schedule D. Fortunately it's likely to be a pretty trivial amount and you can chalk it up to a lesson learned.

Search for livesoft's TLH threads, especially his real-time example, for a good tutorial.
I read livesoft's big live TLH thread, and on going back into my transaction history I might have screwed up big time. I converted 11k worth of VTSAX to VTIAX in my spouse's Roth IRA within 30 days of the 07/02/2018 sale where I was trying to harvest $3400 of losses. I'm pretty disheartened at this point, I guess I can't claim any of those losses at all? If my tax software can't do it for me (doesn't look like any tax software will) is this something I should try to attempt to report myself or should I just take it all to H&R Block in the spring? :( Can I sell the remaining VTIAX in 30 days and capture those approx. $3300 losses, or do I need to stop for the year cause the $11k purchase screwed everything up for 2018?

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House Blend
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by House Blend » Mon Jul 09, 2018 12:11 pm

ishkadetto wrote:
Mon Jul 09, 2018 11:22 am
I might have screwed up big time. I converted 11k worth of VTSAX to VTIAX in my spouse's Roth IRA within 30 days of the 07/02/2018 sale where I was trying to harvest $3400 of losses. I'm pretty disheartened at this point, I guess I can't claim any of those losses at all? If my tax software can't do it for me (doesn't look like any tax software will) is this something I should try to attempt to report myself or should I just take it all to H&R Block in the spring? :( Can I sell the remaining VTIAX in 30 days and capture those approx. $3300 losses, or do I need to stop for the year cause the $11k purchase screwed everything up for 2018?
Yes, you will not be able to rely on tax software or your 1099-B to report this correctly. The main options are to figure this out yourself or pay someone to do it for you.

A simplified version goes like this:

Order all of the shares sold at a loss from oldest to newest.
Order all of the replacement shares (taxable, your IRA, spouse's IRA) from oldest to newest.
The oldest replacement share acquires the loss on the oldest share sold.

Ex.: If the oldest share was sold at a loss of $3/share, then the oldest replacement share will have its cost basis increased by $3, and the loss you claim decreases by $3. Repeat until you run out of sold shares or replacement shares.

Vanguard's 1099-B will ignore the replacement shares in the IRA, because that's what the law requires them to do. What they'll report would be valid if you only bought replacement shares in the taxable account.

If your net unrealized gains in the taxable account are minimal or negative, I would suggest that you exchange all of your shares of VTIAX for VFWAX, so that you can start with a clean slate. Note that this will not alter the fact that some of your replacement shares were purchased in an IRA. However, it will have the advantage that the tax reporting complexity will be over and done with all in the 2018 tax year. [Added: But you probably should wait until 31 days after your most recent IRA purchase.]

Also, you didn't mention in your posts whether you are using Specific ID.

You should.

This house cleaning would also give you a chance to start over with Spec ID, in case your sale used Average Basis.

ishkadetto
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ishkadetto » Mon Jul 09, 2018 2:15 pm

House Blend wrote:
Mon Jul 09, 2018 12:11 pm

Yes, you will not be able to rely on tax software or your 1099-B to report this correctly. The main options are to figure this out yourself or pay someone to do it for you.

A simplified version goes like this:

Order all of the shares sold at a loss from oldest to newest.
Order all of the replacement shares (taxable, your IRA, spouse's IRA) from oldest to newest.
The oldest replacement share acquires the loss on the oldest share sold.

Ex.: If the oldest share was sold at a loss of $3/share, then the oldest replacement share will have its cost basis increased by $3, and the loss you claim decreases by $3. Repeat until you run out of sold shares or replacement shares.

Vanguard's 1099-B will ignore the replacement shares in the IRA, because that's what the law requires them to do. What they'll report would be valid if you only bought replacement shares in the taxable account.

If your net unrealized gains in the taxable account are minimal or negative, I would suggest that you exchange all of your shares of VTIAX for VFWAX, so that you can start with a clean slate. Note that this will not alter the fact that some of your replacement shares were purchased in an IRA. However, it will have the advantage that the tax reporting complexity will be over and done with all in the 2018 tax year. [Added: But you probably should wait until 31 days after your most recent IRA purchase.]

Also, you didn't mention in your posts whether you are using Specific ID.
Thank you for your super helpful reply!

I did use Specific ID. I will plan to exchange all remaining taxable VTIAX for VFWAX in at least 31 days from the most recent VTIAX purchase in any account of mine or my spouses, taxable and nontaxable.

I also will attempt to do as you suggested above with tax reporting, putting the shares in order/etc, and then post it here as a response both so someone can tell me if it looks right but also so anyone coming along in the future can have an example and not have to panic as much about it like me :happy

MotoTrojan
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by MotoTrojan » Tue Jul 10, 2018 12:47 pm

ishkadetto wrote:
Mon Jul 09, 2018 2:15 pm


I did use Specific ID. I will plan to exchange all remaining taxable VTIAX for VFWAX in at least 31 days from the most recent VTIAX purchase in any account of mine or my spouses, taxable and nontaxable.

I would not swap VTIAX back to VFWAX unless it is a loss again. You should always TLH into funds you'd be comfortable holding forever.

ishkadetto
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ishkadetto » Sun Jul 22, 2018 1:00 am

House Blend wrote:
Mon Jul 09, 2018 12:11 pm
If your net unrealized gains in the taxable account are minimal or negative, I would suggest that you exchange all of your shares of VTIAX for VFWAX, so that you can start with a clean slate. Note that this will not alter the fact that some of your replacement shares were purchased in an IRA. However, it will have the advantage that the tax reporting complexity will be over and done with all in the 2018 tax year. [Added: But you probably should wait until 31 days after your most recent IRA purchase.]
In the interest of having the tax complexity over and done with all in the 2018 year.... if I exchange all remaining shares of VTIAX for VFWAX (after waiting 31 days from my most recent VTIAX purchase), could I then swap back from VFWAX into VTIAX after waiting another 31 days (provided the market drops again or remains relatively even in the meantime), or must I wait until 2019 to do so? thank you!

ivk5
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ivk5 » Sun Jul 22, 2018 2:22 am

Yes- no need to wait until 2019.

daveydoo
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by daveydoo » Sun Jul 22, 2018 2:32 am

ishkadetto wrote:
Mon Jul 09, 2018 12:18 am
...totally missed the 31-days prior to sale rule...
I struggle with that part, too. Every washed-sale example I see online says "and then re-purchase..." But you turned your auto-invest off.

If I buy a stock or MF and it immediately tanks, I can TLH. I don't need to sit on it for a month. That's what I have done in the past. Not sure how the monthly auto-invest impacts this assuming that you turn it off like you did.
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aristotelian
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by aristotelian » Sun Jul 22, 2018 7:18 am

ishkadetto wrote:
Mon Jul 09, 2018 9:08 am
ishkadetto wrote:
Mon Jul 09, 2018 12:18 am
06/04/2018: Automatic purchase of some VTIAX
06/18/2018: Automatic purchase of some VTIAX
06/21/2018: VTIAX dividend reinvestment
07/02/2018: Sold some VTIAX lots for a loss
It just occurred to me this morning that my Roth IRA with Vanguard holds VTIAX and therefore also received a dividend on 06/21/2018. Is this an additional complicating factor? Or not a problem because its tax-deferred?
Just a friendly tip, this is why I hold all total stock in our IRAs, and all "other stuff" (international, s&p, etc) in the taxable account. No worries about wash sale conflicts.

student
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by student » Sun Jul 22, 2018 8:08 am

aristotelian wrote:
Sun Jul 22, 2018 7:18 am
ishkadetto wrote:
Mon Jul 09, 2018 9:08 am
ishkadetto wrote:
Mon Jul 09, 2018 12:18 am
06/04/2018: Automatic purchase of some VTIAX
06/18/2018: Automatic purchase of some VTIAX
06/21/2018: VTIAX dividend reinvestment
07/02/2018: Sold some VTIAX lots for a loss
It just occurred to me this morning that my Roth IRA with Vanguard holds VTIAX and therefore also received a dividend on 06/21/2018. Is this an additional complicating factor? Or not a problem because its tax-deferred?
Just a friendly tip, this is why I hold all total stock in our IRAs, and all "other stuff" (international, s&p, etc) in the taxable account. No worries about wash sale conflicts.
Excellent advice. I screwed up once and lost a small amount of loss forever due to wash sale with purchases in Roth IRA. These days I try to use different indices (not entirely successful) in retirement accounts and non-retirement accounts.

livesoft
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by livesoft » Sun Jul 22, 2018 8:22 am

ishkadetto wrote:
Mon Jul 09, 2018 11:22 am
I read livesoft's big live TLH thread, and on going back into my transaction history I might have screwed up big time. I converted 11k worth of VTSAX to VTIAX in my spouse's Roth IRA within 30 days of the 07/02/2018 sale where I was trying to harvest $3400 of losses. I'm pretty disheartened at this point, I guess I can't claim any of those losses at all? If my tax software can't do it for me (doesn't look like any tax software will) is this something I should try to attempt to report myself or should I just take it all to H&R Block in the spring? :( Can I sell the remaining VTIAX in 30 days and capture those approx. $3300 losses, or do I need to stop for the year cause the $11k purchase screwed everything up for 2018?
I missed this whole thread when it first started because I was out backpacking in the middle of an awesome butterfly migration.

You will easily become a TLH expert after this debacle.

The Vanguard.com web site already shows you all your wash sales in your taxable account, right? Please look and tell us. So that's no big deal at all. You only have to figure out the Roth IRA transactions.

The Roth IRA interference is not that big a deal either. I showed how to calculate the partial wash sale from a purchase in an IRA in the thread you read. It should be easy for you to follow along with that. With about $3400 of losses in your taxable account, it is unlikely that a $10,000 purchase in an IRA will make much of a dent in that amount, so you will still get an overall tax benefit from tax-loss harvesting.
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ishkadetto
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by ishkadetto » Sun Jul 22, 2018 1:40 pm

livesoft wrote:
Sun Jul 22, 2018 8:22 am
The Vanguard.com web site already shows you all your wash sales in your taxable account, right? Please look and tell us. So that's no big deal at all. You only have to figure out the Roth IRA transactions.
Yes, some wash sales are indicated when I look at the cost basis tab (on the shares bought in taxable on 6/4, 6/18, and dividend received 6/21).

House Blend wrote:
Mon Jul 09, 2018 12:11 pm
If your net unrealized gains in the taxable account are minimal or negative, I would suggest that you exchange all of your shares of VTIAX for VFWAX, so that you can start with a clean slate. Note that this will not alter the fact that some of your replacement shares were purchased in an IRA. However, it will have the advantage that the tax reporting complexity will be over and done with all in the 2018 tax year.
Another question about "getting the 2018 tax complexity over with": what happens if I don't go on to exhange ALL remaining taxable VTIAX for VTWAX this year? How will this affect my future returns? It seems like if I hold tight and do nothing more, I will need to correct Schedule D to reflect that not all losses can be claimed due to the IRA purchase, but I'm not sure how this would go on to continue to affect future years returns?

Thank you all so much for the clarification and help with this, I'm starting to get my head around it I think!

livesoft
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by livesoft » Sun Jul 22, 2018 3:29 pm

ishkadetto wrote:
Sun Jul 22, 2018 1:40 pm
Another question about "getting the 2018 tax complexity over with": what happens if I don't go on to exhange ALL remaining taxable VTIAX for VTWAX (sic, it's VFWAX right?) this year? How will this affect my future returns? It seems like if I hold tight and do nothing more, I will need to correct Schedule D to reflect that not all losses can be claimed due to the IRA purchase, but I'm not sure how this would go on to continue to affect future years returns?

Thank you all so much for the clarification and help with this, I'm starting to get my head around it I think!
You will need to correct Schedule D this year whether you sell all shares of VTIAX or not. But if you clean out VTIAX, then in future years, there will be no incorrect adjusted basis showing up on the Vanguard.com web site in your account. That would mean that any imported 1099-B would be accurate and need no adjustments.
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House Blend
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Re: Did I screwup and create a wash sale? First try at tax loss harvest

Post by House Blend » Mon Jul 23, 2018 10:25 am

ishkadetto wrote:
Sun Jul 22, 2018 1:40 pm
Another question about "getting the 2018 tax complexity over with": what happens if I don't go on to exhange ALL remaining taxable VTIAX for VTWAX this year? How will this affect my future returns? It seems like if I hold tight and do nothing more, I will need to correct Schedule D to reflect that not all losses can be claimed due to the IRA purchase, but I'm not sure how this would go on to continue to affect future years returns?
As you sort through the effects of your recent wash sale, you will have to modify the cost basis of some of your existing, unsold shares in taxable. (The basis will increase, because some shares will acquire some of the losses you harvested. Also, the holding period is modified to match that of the shares whose losses are being acquired.)

Likewise, Vanguard will have to modify their records of your holdings based on a different set of rules that ignore replacement shares in your IRA.

So the issue is that Vanguard's modifications will not be the same as your modifications. That discrepancy will remain, and will require you to manually adjust your Form 8949 in any tax year where you sell any of these shares with modified cost basis (your modifications or Vanguard's, unless by some miracle you have a tax lot for which your modifications and Vanguard's are the same).

So if you sell all of the modified-basis shares this year, the problem is eliminated for future tax years. (Until the next time you create a wash sale involving replacement shares in your IRA.)

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