Unique TLH question... maybe

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WannabeBogleHead01
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Unique TLH question... maybe

Post by WannabeBogleHead01 » Mon Oct 29, 2018 6:43 am

About a month ago I posted a question (viewtopic.php?f=1&t=259794&p=4135947) on minimizing old taxable accounts for simplicity, and due to higher than normal fees. For reference, I have roughly $6k in Vanguard Explorer long-term gains (VEXPX - ER 0.44) that I would like to minimize, with a goal of closing the fund at some point.

I have a collection of short-term losses in other taxable accounts, including:

VFIAX - Vanguard 500 Index (~$750 losses, all short-term)
VTIAX - Vanguard International Index (~$2,800 short-term and ~$750 long-term)

Does it make sense to sell the roughly $4,300 in losses in the above two accounts, then sell $4,300 worth of gains within the Vanguard Explorer account to a) minimize the tax bite and b) minimize the Explorer account? I've read that it may not make sense to sell short-term losses for long-term gains, but am not sure in this case. Then again, I may be completely off base.

Thanks in advance for the help!

JW-Retired
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Re: Unique TLH question... maybe

Post by JW-Retired » Mon Oct 29, 2018 7:46 am

WannabeBogleHead01 wrote:
Mon Oct 29, 2018 6:43 am
I have a collection of short-term losses in other taxable accounts, including:

VFIAX - Vanguard 500 Index (~$750 losses, all short-term)
VTIAX - Vanguard International Index (~$2,800 short-term and ~$750 long-term)

Does it make sense to sell the roughly $4,300 in losses in the above two accounts, then sell $4,300 worth of gains within the Vanguard Explorer account to a) minimize the tax bite and b) minimize the Explorer account?
Typically it's better to harvest the losses but not the gains. If you have no realized gains to absorb the losses, then the losses are used to reduce your ordinary wage or other income (up to $3000/year). That usually saves you more money at a higher tax bracket than 15%.

If your losses exceed $3k/year the remainder gets banked and used in following years.
JW
Last edited by JW-Retired on Mon Oct 29, 2018 7:49 am, edited 1 time in total.
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PFInterest
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Re: Unique TLH question... maybe

Post by PFInterest » Mon Oct 29, 2018 7:46 am

yes, thats the idea.

WannabeBogleHead01
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Re: Unique TLH question... maybe

Post by WannabeBogleHead01 » Mon Oct 29, 2018 7:51 am

Thanks for the response. I do have realized gains to absorb the losses...
For reference, I have roughly $6k in Vanguard Explorer long-term gains
So knowing that, does it makes sense to sell the losses to offset the gains (and minimize the higher ER account?)

Thanks!

JW-Retired
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Joined: Sun Dec 16, 2007 12:25 pm

Re: Unique TLH question... maybe

Post by JW-Retired » Mon Oct 29, 2018 8:22 am

WannabeBogleHead01 wrote:
Mon Oct 29, 2018 7:51 am
Thanks for the response. I do have realized gains to absorb the losses...
For reference, I have roughly $6k in Vanguard Explorer long-term gains
So knowing that, does it makes sense to sell the losses to offset the gains (and minimize the higher ER account?)

Thanks!
"Realized gains" mean you already sold these assets ..... but I don't really think you have yet. The best thing tax wise depends on your tax bracket and what you would pay for cap gains versus other income. So I can't tell if it makes sense for you.

For example, if it was me I would sell the assets with losses now and at least wait until next year to realize the long term VG Explorer gains. That way I would get a taxable income reduction of $3000 on 2018 taxes. That reduces my tax at a much higher rate than the 15% + state that I pay on long term capital gains.
JW
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FoolMeOnce
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Re: Unique TLH question... maybe

Post by FoolMeOnce » Mon Oct 29, 2018 8:28 am

I think your plan is good. It is exactly what I am doing to simplify a messy advisor-created taxable account. Yes, as JW pointed out, the tax savings can be greater when you apply capital losses to earned income, but if simplification of your holdings is worth a bit of a reduced tax benefit, go for it. It definitely is for me.
Last edited by FoolMeOnce on Mon Oct 29, 2018 11:15 am, edited 1 time in total.

go140point6
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Re: Unique TLH question... maybe

Post by go140point6 » Mon Oct 29, 2018 11:02 am

JW-Retired wrote:
Mon Oct 29, 2018 8:22 am
For example, if it was me I would sell the assets with losses now and at least wait until next year to realize the long term VG Explorer gains. That way I would get a taxable income reduction of $3000 on 2018 taxes. That reduces my tax at a much higher rate than the 15% + state that I pay on long term capital gains.
JW
This is exactly what I'm doing... booked 15k loses so far via TLH but will sit on realizing any gains until 2019 at the earliest but likely won't even do it then. I have some individual stock that were acquired back in 2009 before I simplified my investing to a 4-fund approach, and I have this strong desire to realize those gains and clean things up but I'm fighting it because using ST loses to off-set LT gains for such a small amount (about 2.5% of my portfolio) doesn't seem to be the smart approach given my fed+state rate. Now, if my stock positions were much higher (like maybe 10 or 15%) I might justify trade-off due to the exposure risk of individual equities. But it seems the best approach right now is to not rush to do anything and reevaluate in 2019 and beyond.

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grabiner
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Re: Unique TLH question... maybe

Post by grabiner » Mon Oct 29, 2018 9:39 pm

WannabeBogleHead01 wrote:
Mon Oct 29, 2018 6:43 am
About a month ago I posted a question (viewtopic.php?f=1&t=259794&p=4135947) on minimizing old taxable accounts for simplicity, and due to higher than normal fees. For reference, I have roughly $6k in Vanguard Explorer long-term gains (VEXPX - ER 0.44) that I would like to minimize, with a goal of closing the fund at some point.

I have a collection of short-term losses in other taxable accounts, including:

VFIAX - Vanguard 500 Index (~$750 losses, all short-term)
VTIAX - Vanguard International Index (~$2,800 short-term and ~$750 long-term)

Does it make sense to sell the roughly $4,300 in losses in the above two accounts, then sell $4,300 worth of gains within the Vanguard Explorer account to a) minimize the tax bite and b) minimize the Explorer account?
I would suggest harvesting all the losses now, but waiting until 2019 to sell Explorer for a gain. This will allow you to take $3000 in 2018 against your ordinary income rather than against any long-term gains in Explorer. If you are in a 24% tax bracket, it will save you $270 in tax because you get back $720 this year and pay $450 next year.
Wiki David Grabiner

WannabeBogleHead01
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Joined: Wed Nov 09, 2016 10:12 am

Re: Unique TLH question... maybe

Post by WannabeBogleHead01 » Tue Oct 30, 2018 6:43 am

VERY helpful... Thanks everyone! I love this place!

JW-Retired
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Re: Unique TLH question... maybe

Post by JW-Retired » Tue Oct 30, 2018 8:06 am

grabiner wrote:
Mon Oct 29, 2018 9:39 pm
I would suggest harvesting all the losses now, but waiting until 2019 to sell Explorer for a gain. This will allow you to take $3000 in 2018 against your ordinary income rather than against any long-term gains in Explorer. If you are in a 24% tax bracket, it will save you $270 in tax because you get back $720 this year and pay $450 next year.
Well done! Looks like it finally penetrated. :beer
JW
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MotoTrojan
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Re: Unique TLH question... maybe

Post by MotoTrojan » Tue Oct 30, 2018 10:21 am

grabiner wrote:
Mon Oct 29, 2018 9:39 pm
WannabeBogleHead01 wrote:
Mon Oct 29, 2018 6:43 am
About a month ago I posted a question (viewtopic.php?f=1&t=259794&p=4135947) on minimizing old taxable accounts for simplicity, and due to higher than normal fees. For reference, I have roughly $6k in Vanguard Explorer long-term gains (VEXPX - ER 0.44) that I would like to minimize, with a goal of closing the fund at some point.

I have a collection of short-term losses in other taxable accounts, including:

VFIAX - Vanguard 500 Index (~$750 losses, all short-term)
VTIAX - Vanguard International Index (~$2,800 short-term and ~$750 long-term)

Does it make sense to sell the roughly $4,300 in losses in the above two accounts, then sell $4,300 worth of gains within the Vanguard Explorer account to a) minimize the tax bite and b) minimize the Explorer account?
I would suggest harvesting all the losses now, but waiting until 2019 to sell Explorer for a gain. This will allow you to take $3000 in 2018 against your ordinary income rather than against any long-term gains in Explorer. If you are in a 24% tax bracket, it will save you $270 in tax because you get back $720 this year and pay $450 next year.
Agreed. Also don’t forget to harvest the losses with replacement shares; don’t just sell and hit the casino.

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grabiner
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Re: Unique TLH question... maybe

Post by grabiner » Tue Nov 13, 2018 12:44 am

grabiner wrote:
Mon Oct 29, 2018 9:39 pm
WannabeBogleHead01 wrote:
Mon Oct 29, 2018 6:43 am
About a month ago I posted a question (viewtopic.php?f=1&t=259794&p=4135947) on minimizing old taxable accounts for simplicity, and due to higher than normal fees. For reference, I have roughly $6k in Vanguard Explorer long-term gains (VEXPX - ER 0.44) that I would like to minimize, with a goal of closing the fund at some point.

I have a collection of short-term losses in other taxable accounts, including:

VFIAX - Vanguard 500 Index (~$750 losses, all short-term)
VTIAX - Vanguard International Index (~$2,800 short-term and ~$750 long-term)

Does it make sense to sell the roughly $4,300 in losses in the above two accounts, then sell $4,300 worth of gains within the Vanguard Explorer account to a) minimize the tax bite and b) minimize the Explorer account?
I would suggest harvesting all the losses now, but waiting until 2019 to sell Explorer for a gain. This will allow you to take $3000 in 2018 against your ordinary income rather than against any long-term gains in Explorer. If you are in a 24% tax bracket, it will save you $270 in tax because you get back $720 this year and pay $450 next year.
Now that Vanguard has announced estimated distributions, this may not work. Explorer is expected to distribute a capital gain of 9% of its value, which will be offset by your capital losses if you haven't already sold the fund.
Wiki David Grabiner

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