confirm TLH steps

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indexonlyplease
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confirm TLH steps

Post by indexonlyplease » Sat Dec 22, 2018 9:09 am

In 2017 a purchased multiple lots of Vanguard Total Stock Market (taxed account). I just turned off reinvest this month, so I have some smaller purchase lots in 2018 form dividends. All now show a lost. I see on my account short term and long term loss. All in red.

So now I decided to TLH but want to make sure there is no negative results in this.

Should I just shell all and repurchase back in 31 days?
I show almost 9K in losses. That means I have 3k a year for the next 3 years to come off my gross income?
Does it matter what tax bracket I am in?
I take a standard detuction every year so this is the only tax break I will have.

I there something missing? That I am not understanding. Also does it matter if I don't invest the tax savings?

Will there be any negative effect for me down the road. I will alway maintain my tax bracet at 22% or above.

livesoft
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Re: confirm TLH steps

Post by livesoft » Sat Dec 22, 2018 9:16 am

I would not sit in a money market for 30 days. Why? The reason is that worst days in the market often occur (are correlated in time) close to best days in the market, especially within 31 days of each other. One doesn't know beforehand if a worst day will come first or a best day will come first. HOWEVER, we do know after they happen when WORST days have occurred. They are right there in your face.

And we know some of the causes of the WORST days in December 2018. Those causes will fix themselves in the very near term of the next 30 days. When they are fixed, the stock markets may have some of their best days. If your money is not invested, then you have just participated in the worst days, but will not participate in the possible best days.

The above would be different if one was tax-loss harvesting after a relatively calm period in the stock markets with no headlines of "Worst since ..." or "Brexit vote delayed ..." or "Fed raises rates ..." or "No paychecks for some Federal workers ..." or "National parks closed ...". You should get the idea of what I'm writing.
Last edited by livesoft on Sat Dec 22, 2018 9:38 am, edited 1 time in total.
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indexonlyplease
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Re: confirm TLH steps

Post by indexonlyplease » Sat Dec 22, 2018 9:21 am

So my steps are correct?

I will just purchase the Vanguard SP500 the next day?
Also, would you then move the money over to the total stock fund in 31 days or just be satisfied with the sp500?

livesoft
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Re: confirm TLH steps

Post by livesoft » Sat Dec 22, 2018 9:27 am

You should EXCHANGE all at once and not necessarily wait a day.
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go140point6
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Re: confirm TLH steps

Post by go140point6 » Sat Dec 22, 2018 9:37 am

I agree with livesoft. Consider doing an exchange into a suitable TLH partner. I used VFIAX (Vanguard 500 Index) but there are other good choices out there. Just be sure you are ok with holding it "forever". You might consider keeping a small amount of Total so you have a place to invest future dividends if that is your preferred fund, unless meeting the minimum is not an issue for you.

The Wizard
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Re: confirm TLH steps

Post by The Wizard » Sat Dec 22, 2018 9:48 am

go140point6 wrote:
Sat Dec 22, 2018 9:37 am
I agree with livesoft. Consider doing an exchange into a suitable TLH partner. I used VFIAX (Vanguard 500 Index) but there are other good choices out there. Just be sure you are ok with holding it "forever". You might consider keeping a small amount of Total so you have a place to invest future dividends if that is your preferred fund, unless meeting the minimum is not an issue for you.
Exactly.
I'll be doing similar next week and will likely have some shares with gains still remaining in VTSAX.
But that could change...
:(
Attempted new signature...

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indexonlyplease
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Re: confirm TLH steps

Post by indexonlyplease » Sat Dec 22, 2018 10:16 am

livesoft wrote:
Sat Dec 22, 2018 9:27 am
You should EXCHANGE all at once and not necessarily wait a day.
Got it will do.

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indexonlyplease
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Re: confirm TLH steps

Post by indexonlyplease » Sat Dec 22, 2018 10:18 am

go140point6 wrote:
Sat Dec 22, 2018 9:37 am
I agree with livesoft. Consider doing an exchange into a suitable TLH partner. I used VFIAX (Vanguard 500 Index) but there are other good choices out there. Just be sure you are ok with holding it "forever". You might consider keeping a small amount of Total so you have a place to invest future dividends if that is your preferred fund, unless meeting the minimum is not an issue for you.
Agree, I decided next year I will use the dividend to invest into my Roth IRA. I am assuming this woud be ok.

rebellovw
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Re: confirm TLH steps

Post by rebellovw » Sat Dec 22, 2018 1:09 pm

go140point6 wrote:
Sat Dec 22, 2018 9:37 am
I agree with livesoft. Consider doing an exchange into a suitable TLH partner. I used VFIAX (Vanguard 500 Index) but there are other good choices out there. Just be sure you are ok with holding it "forever". You might consider keeping a small amount of Total so you have a place to invest future dividends if that is your preferred fund, unless meeting the minimum is not an issue for you.
What do you mean by holding it forever? You don’t have to hold it forever - you could TLH it if the market drops further and move into a 3rd fund. What do you mean by this?

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indexonlyplease
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Re: confirm TLH steps

Post by indexonlyplease » Sat Dec 22, 2018 5:13 pm

follow up question.

Does the 3k loss come after the standard detuction of 24k. So someone filling starndard deduction married filling jointly get 24k plus the 3k?

livesoft
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Re: confirm TLH steps

Post by livesoft » Sat Dec 22, 2018 5:17 pm

Why would it matter if the $3K was before or after the standard deduction?

It comes before the standard deduction and is "above the line." So it reduces one's AGI. That's better than coming after the deduction for some reasons.

You can see all this by looking at your tax returns from the past.
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Nate79
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Re: confirm TLH steps

Post by Nate79 » Sat Dec 22, 2018 5:50 pm

rebellovw wrote:
Sat Dec 22, 2018 1:09 pm
go140point6 wrote:
Sat Dec 22, 2018 9:37 am
I agree with livesoft. Consider doing an exchange into a suitable TLH partner. I used VFIAX (Vanguard 500 Index) but there are other good choices out there. Just be sure you are ok with holding it "forever". You might consider keeping a small amount of Total so you have a place to invest future dividends if that is your preferred fund, unless meeting the minimum is not an issue for you.
What do you mean by holding it forever? You don’t have to hold it forever - you could TLH it if the market drops further and move into a 3rd fund. What do you mean by this?
If the market goes up after purchasing the replacement fund that fund may never have a loss again in the future. So you should be prepared to hold the replacement fund or be prepared to sell with a gain to get back to your original fund.

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Re: confirm TLH steps

Post by PhysicianOnFIRE » Sat Dec 22, 2018 10:46 pm

If the market rebounds in the next 30 days, any benefit gained from TLH could be more than offset by the opportunity cost of holding cash for a month.

I recommend exchanging into a similar (but not substantially identical) fund immediately, so you don't take a minute out of the market. If you've already sold, you can buy back in to something like VFIAX (S&P 500), VLCAX (large cap), or VTCLX (large cap tax managed).

As others have said, you should be comfortable holding onto the new fund forever in the event of a market rebound (or be willing to pay some cap gains taxes to move back to VTSAX a month later).

:beer
-PoF

go140point6
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Re: confirm TLH steps

Post by go140point6 » Sat Dec 22, 2018 10:52 pm

Nate79 wrote:
Sat Dec 22, 2018 5:50 pm
rebellovw wrote:
Sat Dec 22, 2018 1:09 pm
go140point6 wrote:
Sat Dec 22, 2018 9:37 am
I agree with livesoft. Consider doing an exchange into a suitable TLH partner. I used VFIAX (Vanguard 500 Index) but there are other good choices out there. Just be sure you are ok with holding it "forever". You might consider keeping a small amount of Total so you have a place to invest future dividends if that is your preferred fund, unless meeting the minimum is not an issue for you.
What do you mean by holding it forever? You don’t have to hold it forever - you could TLH it if the market drops further and move into a 3rd fund. What do you mean by this?
If the market goes up after purchasing the replacement fund that fund may never have a loss again in the future. So you should be prepared to hold the replacement fund or be prepared to sell with a gain to get back to your original fund.
Exactly... if the market (and your 2nd choice fund) goes up significantly you may be "stuck" with it until you are ready to sell at a gain.

An example (not exactly a TLH example but one where the market zoomed)... before we got married, my wife started buying SPY (S&P 500) in mid 2009, did some dollar cost averaging for couple years, then stopped... through shear dumb luck (she pays ZERO attention to the market then and now, certainly wasn't trying to buy at the bottom) she probably bought most of that ETF at the bottom... even after all the volatility over the last few months, we're still up just over 100% on that position...

I'd ideally like to sell it to simplify into my 4-fund approach using Vanguard index funds, but I'll probably be holding it for a very long time...

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indexonlyplease
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Re: confirm TLH steps

Post by indexonlyplease » Sun Dec 23, 2018 8:17 am

Thanks for all the responses. Let you know how the sale went.

rebellovw
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Re: confirm TLH steps

Post by rebellovw » Sun Dec 23, 2018 10:19 am

Nate79 wrote:
Sat Dec 22, 2018 5:50 pm
rebellovw wrote:
Sat Dec 22, 2018 1:09 pm

What do you mean by holding it forever? You don’t have to hold it forever - you could TLH it if the market drops further and move into a 3rd fund. What do you mean by this?
If the market goes up after purchasing the replacement fund that fund may never have a loss again in the future. So you should be prepared to hold the replacement fund or be prepared to sell with a gain to get back to your original fund.
go140point6 wrote:
Sat Dec 22, 2018 10:52 pm
Nate79 wrote:
Sat Dec 22, 2018 5:50 pm
rebellovw wrote:
Sat Dec 22, 2018 1:09 pm

What do you mean by holding it forever? You don’t have to hold it forever - you could TLH it if the market drops further and move into a 3rd fund. What do you mean by this?
If the market goes up after purchasing the replacement fund that fund may never have a loss again in the future. So you should be prepared to hold the replacement fund or be prepared to sell with a gain to get back to your original fund.
Exactly... if the market (and your 2nd choice fund) goes up significantly you may be "stuck" with it until you are ready to sell at a gain.

An example (not exactly a TLH example but one where the market zoomed)... before we got married, my wife started buying SPY (S&P 500) in mid 2009, did some dollar cost averaging for couple years, then stopped... through shear dumb luck (she pays ZERO attention to the market then and now, certainly wasn't trying to buy at the bottom) she probably bought most of that ETF at the bottom... even after all the volatility over the last few months, we're still up just over 100% on that position...

I'd ideally like to sell it to simplify into my 4-fund approach using Vanguard index funds, but I'll probably be holding it for a very long time...
Thanks very much you two that makes perfect sense and is definitely a nuance I didn’t consider.

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indexonlyplease
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Re: confirm TLH steps

Post by indexonlyplease » Mon Dec 24, 2018 7:17 am

Does it matter how many years of losses one carries. Meaning can someone have 30k in losses and just detuct the 3k each year for 10 years? Also, pile on more if you have more losses.

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Re: confirm TLH steps

Post by livesoft » Mon Dec 24, 2018 7:20 am

indexonlyplease wrote:
Mon Dec 24, 2018 7:17 am
Does it matter how many years of losses one carries. Meaning can someone have 30k in losses and just detuct the 3k each year for 10 years? Also, pile on more if you have more losses.
It doesn't matter. Not only can one pile on more losses, but one can use them up by realizing gains during rebalancing, paying for college, paying for a vehicle, or simply living large or living soft.
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indexonlyplease
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Re: confirm TLH steps

Post by indexonlyplease » Mon Dec 24, 2018 7:33 am

Different question

Why is Vanguard Total Stock Market fund pay 95% qualified dividends and 5% I am guessing is ordinary dividends? Now that I understand the difference in the taxes, why not all qualified dividends.

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Re: confirm TLH steps

Post by livesoft » Mon Dec 24, 2018 7:35 am

I think the current thought is that the REIT stocks held by the fund pay non-qualified dividends.

And don't forget that "ordinary" refers to both qualified and non-qualified dividends. The fund pays 100% ordinary dividends and no exempt-interest dividends to my knowledge.
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indexonlyplease
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Re: confirm TLH steps

Post by indexonlyplease » Mon Dec 24, 2018 7:52 am

Another tax question:

I am reading the different taxes, I see AMTI Alternative Minumum Tax, just not understanding where someone pays this. Is this extra tax on top of someones tax bracket? $109,400 for married couples filing jointly

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Re: confirm TLH steps

Post by cals400ex » Mon Dec 24, 2018 8:18 am

If you held VTSAX in your taxable and Roth IRA accounts, must you turn off reinvest dividends for all accounts? Or just the taxable where you’re TLH at?

livesoft
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Re: confirm TLH steps

Post by livesoft » Mon Dec 24, 2018 8:41 am

cals400ex wrote:
Mon Dec 24, 2018 8:18 am
If you held VTSAX in your taxable and Roth IRA accounts, must you turn off reinvest dividends for all accounts? Or just the taxable where you’re TLH at?
One doesn't have to turn off reinvesting if one isn't bothered by potential and actual wash sales and knows how to treat them on their tax returns.
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cals400ex
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Re: confirm TLH steps

Post by cals400ex » Mon Dec 24, 2018 9:01 am

livesoft wrote:
Mon Dec 24, 2018 8:41 am
cals400ex wrote:
Mon Dec 24, 2018 8:18 am
If you held VTSAX in your taxable and Roth IRA accounts, must you turn off reinvest dividends for all accounts? Or just the taxable where you’re TLH at?
One doesn't have to turn off reinvesting if one isn't bothered by potential and actual wash sales and knows how to treat them on their tax returns.
It looks like I maybe too late as it appears the dividends have been distributed already. I was under the assumption they were distributed at the end of the month. If I TLH now, I’ll have some wash sales. I have a lot of losses, so it should still be beneficial to TLH, or so I would think.

livesoft
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Re: confirm TLH steps

Post by livesoft » Mon Dec 24, 2018 9:10 am

The issue will not be the shares bought by the dividends paid in your taxable account because you can simply sell those shares. The issue will be the shares bought in IRAs which will create a partial wash sale and the disallowed loss that is attached to them will be permanently disallowed.
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indexonlyplease
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Re: confirm TLH steps

Post by indexonlyplease » Mon Dec 24, 2018 3:26 pm

Question,

I will received around 2k in dividend this year. The 3k in losses from TLH this year will offset the dividends? After that do I also get to deduct another 3K? in losses for a total of 3k loss for the year. or will it just be 1k off income.
Last edited by indexonlyplease on Mon Dec 24, 2018 3:27 pm, edited 1 time in total.

livesoft
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Re: confirm TLH steps

Post by livesoft » Mon Dec 24, 2018 3:27 pm

No. A dividend is not a capital gain, so it is not offset by a realized capital loss.
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indexonlyplease
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Re: confirm TLH steps

Post by indexonlyplease » Mon Dec 24, 2018 3:29 pm

So I will pay 15% on the dividends received and then take the 3k loss of income?

livesoft
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Re: confirm TLH steps

Post by livesoft » Mon Dec 24, 2018 3:36 pm

indexonlyplease wrote:
Mon Dec 24, 2018 3:29 pm
So I will pay 15% on the dividends received and then take the 3k loss of income?
I have no idea what the tax is on your dividend income. It might be 0%, 15%, or even more. You do know that dividends can be qualified ordinary dividend income or non-qualified ordinary dividend income or a mix.

It is time to buy tax prep software and work your way through taxes I think.
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indexonlyplease
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Re: confirm TLH steps

Post by indexonlyplease » Mon Dec 24, 2018 3:40 pm

livesoft wrote:
Mon Dec 24, 2018 3:36 pm
indexonlyplease wrote:
Mon Dec 24, 2018 3:29 pm
So I will pay 15% on the dividends received and then take the 3k loss of income?
I have no idea what the tax is on your dividend income. It might be 0%, 15%, or even more. You do know that dividends can be qualified ordinary dividend income or non-qualified ordinary dividend income or a mix.

It is time to buy tax prep software and work your way through taxes I think.
Yes good point. I delayed to long not knowing enough about taxes. This could be a good point for many young investors.

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Re: confirm TLH steps

Post by PoinDexter » Mon Dec 24, 2018 5:27 pm

In my view, in order to do a TLH and in-kind buy, you need to think about how to obtain a holding similar to TTL Stk Mkt that uses 2 or 3 other funds together. S&P500 is a good start, but look at the TTL Stk Mkt documentation, annual rept, etc., to determine the percentage of large, small and mid caps in TTL Stk Mkt. Then, buy S&P500 fund, midcap fund, and small cap fund in those proportions. This avoids the issue you'd have if you simply bought another "brand" TTL Stk Mkt fund.

(PS: It's been a while since I posted and I had to create a new account in order to reactivate . . . I'm not new to this forum, tho I don't often comment.)

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