Tax loss harvest question

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itaos
Posts: 15
Joined: Tue Aug 10, 2010 10:58 am

Tax loss harvest question

Post by itaos » Thu Oct 11, 2018 5:38 pm

I have spent the last 2 hours reviewing old threads on TLH, wash sales and websites trying to figure this out on my own but the concept eludes me for some reason.

In a taxable account:
9/27 6 shares VTSAX reinvested dividends
10/2 180 shares VTSAX purchased

I would like to sell/exchange both lots to benefit from TLH from recent losses if possible. Will I be able to deduct any % of losses in this situation due to the timing?

I have seen the suggestion from Livesoft to just process the trade and figure it out after, but would prefer to learn the lesson beforehand. Thanks!

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iceport
Posts: 4008
Joined: Sat Apr 07, 2007 4:29 pm

Re: Tax loss harvest question

Post by iceport » Thu Oct 11, 2018 6:06 pm

itaos wrote:
Thu Oct 11, 2018 5:38 pm
In a taxable account:
9/27 6 shares VTSAX reinvested dividends
10/2 180 shares VTSAX purchased

I would like to sell/exchange both lots to benefit from TLH from recent losses if possible. Will I be able to deduct any % of losses in this situation due to the timing?
As long as those represent all of the shares purchased withing the 61 day wash sale period (the loss harvest day plus 30 days before and after), yes. Provided you purchase no other "substantially identical" replacement shares within the wash sale period, you should be able to claim the full loss. The shares sold cannot be replacement shares, because you will no longer own them.
"Discipline matters more than allocation.” ─William Bernstein

itaos
Posts: 15
Joined: Tue Aug 10, 2010 10:58 am

Re: Tax loss harvest question

Post by itaos » Thu Oct 11, 2018 6:52 pm

iceport wrote:
Thu Oct 11, 2018 6:06 pm
As long as those represent all of the shares purchased withing the 61 day wash sale period (the loss harvest day plus 30 days before and after), yes. Provided you purchase no other "substantially identical" replacement shares within the wash sale period, you should be able to claim the full loss. The shares sold cannot be replacement shares, because you will no longer own them.
Thank you for the reply. Can you please explain the bolded portion?

Because all shares in the second purchase are being sold they no longer count as the identical replacement in a wash sale?
I went through Publication 550 but it did not clear things up.

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iceport
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Joined: Sat Apr 07, 2007 4:29 pm

Re: Tax loss harvest question

Post by iceport » Thu Oct 11, 2018 8:08 pm

itaos wrote:
Thu Oct 11, 2018 6:52 pm
iceport wrote:
Thu Oct 11, 2018 6:06 pm
As long as those represent all of the shares purchased withing the 61 day wash sale period (the loss harvest day plus 30 days before and after), yes. Provided you purchase no other "substantially identical" replacement shares within the wash sale period, you should be able to claim the full loss. The shares sold cannot be replacement shares, because you will no longer own them.
Thank you for the reply. Can you please explain the bolded portion?

Because all shares in the second purchase are being sold they no longer count as the identical replacement in a wash sale?
That last question is not what I responded to.* Your OP stated that both purchases you listed would be sold. If you sold both, you would then own no replacement shares purchased within the wash sale period.

If there is a wash sale, the shares to which the wash sale applies is determined by matching the replacement shares bought within the wash sale period to an equivalent number of shares sold at a loss (harvested). If you hold no shares bought within the wash sale period, there are no replacement shares to match with the harvested shares — they are actually one and the same. Even if you tried to match them, theoretically and erroneously, the amount of the loss on the shares sold would be added to the cost basis of the [shares sold] and you would harvest the loss anyway.

Like so many other aspects of wash sale rule interpretation, I don't think this approach is explicitly defined anywhere. But in Pub. 550 in the section under the heading "More or less stock bought than sold" on P. 59, the basics of the matching rules are described.

*If you sold only the second purchase of 10/2, the first purchase of 9/27 would result in a wash sale of 6 shares. The disallowed loss on 6 shares (of the 180 sold) would then be added to the cost basis of the 6 shares bought on 9/27 and still held.
"Discipline matters more than allocation.” ─William Bernstein

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