Capital Gain and Tax Loss Harvesting

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jcjc
Posts: 53
Joined: Sun Mar 15, 2015 4:18 pm

Capital Gain and Tax Loss Harvesting

Post by jcjc » Thu Dec 06, 2018 11:54 am

I have a gain this year however it is still within the no tax due (low brackets). If i sell a municipal bond fund that I know longer need I will have a loss on that particular trade. Will this be a wasted loss? I don't need to reduce my gain from earlier since no tax due. Should I wait until January since I might incur a taxable capital gain next year? Retired and selling something every year to live on.

Hope this question makes sense! Thanks

mhalley
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Joined: Tue Nov 20, 2007 6:02 am

Re: Capital Gain and Tax Loss Harvesting

Post by mhalley » Thu Dec 06, 2018 12:47 pm

There are mutiple ways to do tax loss harvesting. Some like a dollar amount, say $500. If you no longer need munibonds due to a decrease tax bracket, changing to a taxable bond fund that gives a higher yield makes sense. Selling at a loss makes sense for that reason, no matter the amount of the loss. Capital losses carry over forever, and in addition you can carry over 3k to apply against ordinary income, so you can’t waste a loss.

nolesrule
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Re: Capital Gain and Tax Loss Harvesting

Post by nolesrule » Thu Dec 06, 2018 1:11 pm

mhalley wrote:
Thu Dec 06, 2018 12:47 pm
Capital losses carry over forever, and in addition you can carry over 3k to apply against ordinary income, so you can’t waste a loss.
The OP has a capital gain that falls in the 0% capital gain bracket. A capital loss must first offset capital gains before it can be applied against ordinary income, so in the sense of using the loss to reduce taxes, yes the loss is wasted.

senex
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Joined: Wed Dec 13, 2017 4:38 pm

Re: Capital Gain and Tax Loss Harvesting

Post by senex » Thu Dec 06, 2018 2:23 pm

nolesrule wrote:
Thu Dec 06, 2018 1:11 pm
The OP has a capital gain that falls in the 0% capital gain bracket. A capital loss must first offset capital gains before it can be applied against ordinary income, so in the sense of using the loss to reduce taxes, yes the loss is wasted.
I agree: wait until January, else you will waste the loss.

I think mhalley misunderstood that you already have a capital gain.

b0B
Posts: 343
Joined: Fri Oct 19, 2018 11:39 am

Re: Capital Gain and Tax Loss Harvesting

Post by b0B » Thu Dec 06, 2018 2:31 pm

jcjc wrote:
Thu Dec 06, 2018 11:54 am
I have a gain this year however it is still within the no tax due (low brackets). If i sell a municipal bond fund that I know longer need I will have a loss on that particular trade. Will this be a wasted loss? I don't need to reduce my gain from earlier since no tax due. Should I wait until January since I might incur a taxable capital gain next year? Retired and selling something every year to live on.

Hope this question makes sense! Thanks
mhalley wrote:
Thu Dec 06, 2018 12:47 pm
There are mutiple ways to do tax loss harvesting. Some like a dollar amount, say $500. If you no longer need munibonds due to a decrease tax bracket, changing to a taxable bond fund that gives a higher yield makes sense. Selling at a loss makes sense for that reason, no matter the amount of the loss. Capital losses carry over forever, and in addition you can carry over 3k to apply against ordinary income, so you can’t waste a loss.
This forum seems to have an incredibly strong bias towards the "TLH at every opportunity, it can never be a bad choice" philosophy.

But OP just very clearly spelled a classic situation where you very obviously should not TLH.

megabad
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Joined: Fri Jun 01, 2018 4:00 pm

Re: Capital Gain and Tax Loss Harvesting

Post by megabad » Thu Dec 06, 2018 2:48 pm

nolesrule wrote:
Thu Dec 06, 2018 1:11 pm
mhalley wrote:
Thu Dec 06, 2018 12:47 pm
Capital losses carry over forever, and in addition you can carry over 3k to apply against ordinary income, so you can’t waste a loss.
The OP has a capital gain that falls in the 0% capital gain bracket. A capital loss must first offset capital gains before it can be applied against ordinary income, so in the sense of using the loss to reduce taxes, yes the loss is wasted.
+1

Without knowing OP's future tax bracket hard to recommend what to do in future, but no reason to realize losses now if you don't need the money in this case.

bradpevans
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Joined: Sun Apr 08, 2018 1:09 pm

Re: Capital Gain and Tax Loss Harvesting

Post by bradpevans » Thu Dec 06, 2018 2:58 pm

jcjc wrote:
Thu Dec 06, 2018 11:54 am
I have a gain this year however it is still within the no tax due (low brackets). If i sell a municipal bond fund that I know longer need I will have a loss on that particular trade. Will this be a wasted loss? I don't need to reduce my gain from earlier since no tax due. Should I wait until January since I might incur a taxable capital gain next year? Retired and selling something every year to live on.

Hope this question makes sense! Thanks
What will your bracket be next year?
If you take the loss this year, it seems you just move down but within the no tax bracket, so that may not "hurt you"

If next year you take that loss (and no other gains nor losses), will that offset income within a taxable bracket?
if you are in the same 'no tax due bracket' next year, i don't think it matters

jcjc
Posts: 53
Joined: Sun Mar 15, 2015 4:18 pm

Re: Capital Gain and Tax Loss Harvesting

Post by jcjc » Thu Dec 06, 2018 8:22 pm

Thanks for the replies. We do not need the loss applied this year as many understood. We will still be in a low bracket next year. I really need to eliminate the muni and buy Total Bond instead but I think I will wait until January in case circumstances change next year. Rebalancing sometimes causes large gains in our accounts as they have been held a long time in taxable accounts. So far only I have been trying to keep gains and ordinary together in the 15% bracket. Will be getting tougher in the future not easier.

Bacchus01
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Joined: Mon Dec 24, 2012 9:35 pm

Re: Capital Gain and Tax Loss Harvesting

Post by Bacchus01 » Thu Dec 06, 2018 8:41 pm

nolesrule wrote:
Thu Dec 06, 2018 1:11 pm
mhalley wrote:
Thu Dec 06, 2018 12:47 pm
Capital losses carry over forever, and in addition you can carry over 3k to apply against ordinary income, so you can’t waste a loss.
The OP has a capital gain that falls in the 0% capital gain bracket. A capital loss must first offset capital gains before it can be applied against ordinary income, so in the sense of using the loss to reduce taxes, yes the loss is wasted.
Take more gains

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: Capital Gain and Tax Loss Harvesting

Post by rkhusky » Fri Dec 07, 2018 6:50 am

jcjc wrote:
Thu Dec 06, 2018 8:22 pm
Thanks for the replies. We do not need the loss applied this year as many understood. We will still be in a low bracket next year. I really need to eliminate the muni and buy Total Bond instead but I think I will wait until January in case circumstances change next year. Rebalancing sometimes causes large gains in our accounts as they have been held a long time in taxable accounts. So far only I have been trying to keep gains and ordinary together in the 15% bracket. Will be getting tougher in the future not easier.
If you think you will be paying 15% cap gain taxes on withdrawals in the future, then you could take a look at cap gain harvesting up to the top of the 12% bracket, with long term cap gains taxed at 0%.

ivk5
Posts: 479
Joined: Thu Sep 22, 2016 9:05 am

Re: Capital Gain and Tax Loss Harvesting

Post by ivk5 » Fri Dec 07, 2018 7:05 am

Agree with harvesting long-term gains up to the top of the 0% LTCG limit, as long as there are no other hidden tax impacts (eg MAGI-dependent credits).

No need to worry about waiting periods or “substantially identical” as one does with TLH. Just need to watch out for frequent trading restrictions if making round trip into same fund (and there are workarounds).

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