tax loss harvest VTIAX to VFWAX?

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miket29
Posts: 9
Joined: Tue Jun 20, 2017 9:07 pm

tax loss harvest VTIAX to VFWAX?

Post by miket29 » Tue Oct 16, 2018 3:19 pm

I have not done tax-loss harvesting before but am looking into doing it this year. I thought I'd run my understanding by in case I am missing or have misunderstood something.

1) These funds are similar but not substantially identical since they track different indexes. So I should avoid the wash sale rule for this reason.

2) VTIAX paid a distribution on 9/24/18 that was reinvested so if I wait more than 30 days past this to sell I should avoid a wash sale.

3) I have turned off reinvest for VTIAX held in my IRA to avoid a wash sale.

One thing I've thought about is capital gains, but looking at the Vanguard "distribution" tab for these 2 funds shows that both have a realized loss for the year to date. Does this mean they won't be making a capital gains distribution this year?

I've read that it is a mistake to buy before a capital gains distribution since it will end up reported as income even though I did not buy before they earned the gains, and won't qualify for long-term capital gains on my taxes if I haven't held the fund for 60 days.

Is there anything else I should consider?

MotoTrojan
Posts: 2473
Joined: Wed Feb 01, 2017 8:39 pm

Re: tax loss harvest VTIAX to VFWAX?

Post by MotoTrojan » Tue Oct 16, 2018 3:25 pm

miket29 wrote:
Tue Oct 16, 2018 3:19 pm
I have not done tax-loss harvesting before but am looking into doing it this year. I thought I'd run my understanding by in case I am missing or have misunderstood something.

1) These funds are similar but not substantially identical since they track different indexes. So I should avoid the wash sale rule for this reason.

2) VTIAX paid a distribution on 9/24/18 that was reinvested so if I wait more than 30 days past this to sell I should avoid a wash sale.

3) I have turned off reinvest for VTIAX held in my IRA to avoid a wash sale.

One thing I've thought about is capital gains, but looking at the Vanguard "distribution" tab for these 2 funds shows that both have a realized loss for the year to date. Does this mean they won't be making a capital gains distribution this year?

I've read that it is a mistake to buy before a capital gains distribution since it will end up reported as income even though I did not buy before they earned the gains, and won't qualify for long-term capital gains on my taxes if I haven't held the fund for 60 days.

Is there anything else I should consider?
I don't believe it is common for these types of broad indexes to distribute capital gains but I am not certain.

As to your #2, if that distribution is also a loss, simply sell it along with the rest of yours shares and there is no wash sale, and then more tax savings for you. No need to wait 30 days if you are selling the disallowed shares.

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Dale_G
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Re: tax loss harvest VTIAX to VFWAX?

Post by Dale_G » Tue Oct 16, 2018 4:55 pm

MotoTrojan wrote:
Tue Oct 16, 2018 3:25 pm
As to your #2, if that distribution is also a loss, simply sell it along with the rest of yours shares and there is no wash sale, and then more tax savings for you. No need to wait 30 days if you are selling the disallowed shares.
Except that the IRA dividends are considered replacement shares by the IRS. The IRA reinvestment is not reported, but to be legit, wait the 30 days.

Edit - or sell the IRA reinvested shares as well as the taxable reinvested shares. I play by the rules as I understand them.

Dale
Volatility is my friend

MotoTrojan
Posts: 2473
Joined: Wed Feb 01, 2017 8:39 pm

Re: tax loss harvest VTIAX to VFWAX?

Post by MotoTrojan » Tue Oct 16, 2018 6:58 pm

Dale_G wrote:
Tue Oct 16, 2018 4:55 pm
MotoTrojan wrote:
Tue Oct 16, 2018 3:25 pm
As to your #2, if that distribution is also a loss, simply sell it along with the rest of yours shares and there is no wash sale, and then more tax savings for you. No need to wait 30 days if you are selling the disallowed shares.
Except that the IRA dividends are considered replacement shares by the IRS. The IRA reinvestment is not reported, but to be legit, wait the 30 days.

Edit - or sell the IRA reinvested shares as well as the taxable reinvested shares. I play by the rules as I understand them.

Dale
Apologies I was thinking taxable distribution. Livesoft the other day stated that selling the share first in the IRA did not satisfy the requirement, but I infact did this the other day. For me it was a single share so I am not too concerned (rounding error on my tax return).

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