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Tax loss harvest VTSAX -> VLCAX

Posted: Thu Oct 11, 2018 9:04 pm
by berg
So about a month ago I added a lump sum to my taxable portfolio. I already owned VLCAX in the account, with lots from 2016. For my recent lump sum I purchased VTSAX and that lot is the only VTSAX I own in my taxable account. With the dip the last few days, I have a loss of about $8k right now. Any reason not to sell all of the VTSAX at the $8k loss and put it in with the rest of my VLCAX? Though I did received a dividend of $560 on 9/27, so would that portion be considered a wash sale since that is within 30 days? Would that only negate $560 of the $8k loss?

Thanks!

Re: Tax loss harvest VTSAX -> VLCAX

Posted: Thu Oct 11, 2018 9:09 pm
by livesoft
Exchanging all your shares of VTSAX to VLCAX in order to tax-loss harvest is a good idea. You will learn that your dividend from September will not create a wash sale, too.

Re: Tax loss harvest VTSAX -> VLCAX

Posted: Thu Oct 11, 2018 9:18 pm
by MotoTrojan
Nicely done! As livesoft (the TLH master in my eyes) alluded to, as long as you sell the dividend too, you will not have generated a wash sale. Vanguard may show it as such (I've seen this when selling multiple lots) but the effect will be no wash.

You mentioned VTSAX lot is all you have in taxable, but what about your IRAs? If you hold VTSAX or VTI in those and purchased (including dividends) in the last 30 days, that would constitute a wash and Vanguard would not detect it themselves.

Re: Tax loss harvest VTSAX -> VLCAX

Posted: Thu Oct 11, 2018 9:25 pm
by berg
MotoTrojan wrote:
Thu Oct 11, 2018 9:18 pm
Nicely done! As livesoft (the TLH master in my eyes) alluded to, as long as you sell the dividend too, you will not have generated a wash sale. Vanguard may show it as such (I've seen this when selling multiple lots) but the effect will be no wash.

You mentioned VTSAX lot is all you have in taxable, but what about your IRAs? If you hold VTSAX or VTI in those and purchased (including dividends) in the last 30 days, that would constitute a wash and Vanguard would not detect it themselves.
Yes. I have $288 dividend in my Roth IRA and my wife has $155 in hers for VTSAX on 9/27. The taxable is in both of our names. Is there an action to take here then?

Re: Tax loss harvest VTSAX -> VLCAX

Posted: Thu Oct 11, 2018 9:26 pm
by livesoft
You have a choice:

1. Wait to TLH in taxable because the shares bought in the IRAs will create wash sales
-or-
2. Don't wait to TLH and show the disallowed loss on your tax return.

Re: Tax loss harvest VTSAX -> VLCAX

Posted: Thu Oct 11, 2018 9:31 pm
by berg
livesoft wrote:
Thu Oct 11, 2018 9:26 pm
You have a choice:

1. Wait to TLH in taxable because the shares bought in the IRAs will create wash sales
-or-
2. Don't wait to TLH and show the disallowed loss on your tax return.
Am I understanding correct that the wash would only apply to the $288 + $155. So still looking at a $7500 TLH? The catch is just Vanguard doesn't detect the wash, so I have to be sure to show myself on the tax return?

Re: Tax loss harvest VTSAX -> VLCAX

Posted: Thu Oct 11, 2018 9:37 pm
by livesoft
Yes, the wash would apply to the shares purchased with the $288 and $155, so the dollar amount will likely be much much smaller than $443. And yes, you would have to make a small change to your tax return as shown elsewhere on the forum.

Re: Tax loss harvest VTSAX -> VLCAX

Posted: Thu Oct 11, 2018 9:44 pm
by berg
livesoft wrote:
Thu Oct 11, 2018 9:37 pm
Yes, the wash would apply to the shares purchased with the $288 and $155, so the dollar amount will likely be much much smaller than $443. And yes, you would have to make a small change to your tax return as shown elsewhere on the forum.
So seems like a no brainer to do it? Feel like I'm missing something!

Re: Tax loss harvest VTSAX -> VLCAX

Posted: Thu Oct 11, 2018 9:51 pm
by livesoft
I think the only thing you are missing is that you will be required to provide testimonials and answers on bogleheads.org whenever someone asks about a potential wash sale. You will write, "It was a no brainer and easy! Do it!"

Re: Tax loss harvest VTSAX -> VLCAX

Posted: Thu Oct 11, 2018 10:09 pm
by MotoTrojan
berg wrote:
Thu Oct 11, 2018 9:44 pm
livesoft wrote:
Thu Oct 11, 2018 9:37 pm
Yes, the wash would apply to the shares purchased with the $288 and $155, so the dollar amount will likely be much much smaller than $443. And yes, you would have to make a small change to your tax return as shown elsewhere on the forum.
So seems like a no brainer to do it? Feel like I'm missing something!
Nope. At >$7500, well worth the time to figure out the tax forms. Also unlike broad-based International indeces, the major US indeces are much more similar, so if the market tanks further in the next month, you can go ahead and TLH some/all of your VLCAX into VFIAX :)... and then maybe all back to VTSAX just after that.

Re: Tax loss harvest VTSAX -> VLCAX

Posted: Fri Oct 12, 2018 1:06 am
by iceport
livesoft wrote:
Thu Oct 11, 2018 9:26 pm
You have a choice:

1. Wait to TLH in taxable because the shares bought in the IRAs will create wash sales
-or-
2. Don't wait to TLH and show the disallowed loss on your tax return.
If it were me, I'd choose Option 3:

-or-
3. First, in each IRA, sell at least the number of shares bought within the wash sale period. The next day, TLH in the taxable account. There will be no wash sale, and no reporting requirements.

The wash sale rule is intended to prevent investors from claiming a tax deduction for a loss on property that they still own. If you sell the shares recently purchased (within the wash sale period) in the IRAs prior to TLH, you will not be claiming a loss on property you still own.

There is some ambiguity concerning this method of avoiding a wash sale. Because there is no way of identifying the specific shares to be sold in the IRAs, there is no way to be sure the shares purchased within the wash sale period are sold prior to TLH. The method does, however, clearly comply with the intent of the wash sale rule.