Critque my Tax Loss Harvesting plan

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Topic Author
slamfire
Posts: 33
Joined: Thu Mar 30, 2017 7:35 am

Critque my Tax Loss Harvesting plan

Post by slamfire » Thu May 21, 2020 2:53 pm

Due to COVID-19, about half of the Total International (VTIAX) stocks in my taxable account have an unrealized long-term loss of $24k. I imagine the responsible thing would be to take advantage of this Tax Loss Harvest opportunity. I assume that is correct?

Could the forum review my plan of attack?
  1. In mid-June, I would exchange any Total International (VTIAX) shares that have losses for 75% Developed International Markets (VTMGX) and 25% Emerging Markets (VEMAX).
    • I am delaying this until mid-June so I can sell Total International (VTIAX) right before the fund's dividend record date. I am trying lower my taxable income by not realizing that quarter's income. I do not need cash flow and any dividends I receive would just be reinvested.
    • Last year, the Developed International Markets (VTMGX) and Emerging Markets (VEMAX)'s dividend record date occurred before Total International (VTIAX)'s dividend. Therefore I wouldn't have to worry about receiving their dividends. If this year is different and all three funds have their dividend record date on the same day, I'll just hold the proceeds of the sale in a Money Market fund for one day before I reinvest.
    • I will follow Vanguard's quarterly-updated webpage https://investornews.vanguard/upcoming- ... formation/ in order to verify dividend record dates before they occur.
    • One additional minor benefit is that I would be converting a lot of tiny tax lots into two large tax lots.
  2. 31 days later, I would exchange Developed International Markets (VTMGX) and Emerging Markets (VEMAX) for Total International (VTIAX).
    • Though I will probably realize a small short-term gain (statistically stocks go up over time), it seems that this would be fine since the 31 day short-term gain will probably be very small compared to the long-term loss from COVID-19.
    • Though exchanging the funds back after they see a short-term gain is less efficient than just leaving them as they are, I would prefer to have extra funds in my portfolio for long term simplicity.
In case this is relevant,
  • Every year, I utilize the $3k capital loss limit against ordinary income
  • I already have a $6k carryover loss from last year
  • I do not intend to realize any capital gains this year
Does anyone have any concerns or suggestions for this plan?

sycamore
Posts: 430
Joined: Tue May 08, 2018 12:06 pm

Re: Critque my Tax Loss Harvesting plan

Post by sycamore » Thu May 21, 2020 3:07 pm

slamfire,

Sounds like you understand the main points around TLH. Your plan sounds reasonable to me. I'd simplify things by just TLHing now and be prepared to hold Developed+Emerging for the long run, but that's a matter of preference.

Just to clarify, you're going to sell VTIAX prior to the date-of-record, stay in cash for a day or two, and then buy Developed+Emerging? The check here is to make sure you're okay with being out of the market for even a short time.

Cheers!

livesoft
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Re: Critque my Tax Loss Harvesting plan

Post by livesoft » Thu May 21, 2020 3:07 pm

It seems to me like you could do the exchanges tomorrow, then avoid the dividends June and exchange back in June. This waiting until June seems kinda like a waste to me.
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xxsocraticxx
Posts: 85
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Re: Critque my Tax Loss Harvesting plan

Post by xxsocraticxx » Thu May 21, 2020 5:28 pm

Are any Wash-Sale rules broken here?

"Investors cannot deduct a capital loss on the sale of a security against the capital gain of the same security. This is called a wash sale. Wash-sale rules prevent taxpayers from selling or trading a security at a loss and, within 30 days before or after this sale, buying the same stock or security—or a “substantially identical” one (or acquiring a contract or an option to do so). In the event of a wash sale, your tax write-off may be disallowed by the IRS.2

For investors that want to harvest their losses, while also avoiding any wash-rule violations, one strategy for an individual stock that loses value is to replace it with a mutual fund or an exchange-traded fund (ETF) that targets the same industry. This will allow you to maintain a similar asset allocation in your portfolio."

livesoft
Posts: 71368
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Re: Critque my Tax Loss Harvesting plan

Post by livesoft » Thu May 21, 2020 5:32 pm

xxsocraticxx wrote:
Thu May 21, 2020 5:28 pm
Are any Wash-Sale rules broken here?

"Investors cannot deduct a capital loss on the sale of a security against the capital gain of the same security. This is called a wash sale. Wash-sale rules prevent taxpayers from selling or trading a security at a loss and, within 30 days before or after this sale, buying the same stock or security—or a “substantially identical” one (or acquiring a contract or an option to do so). In the event of a wash sale, your tax write-off may be disallowed by the IRS.2
This is not quite true as discussed at some length: viewtopic.php?f=10&t=312970
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Topic Author
slamfire
Posts: 33
Joined: Thu Mar 30, 2017 7:35 am

Re: Critque my Tax Loss Harvesting plan

Post by slamfire » Thu May 21, 2020 7:41 pm

sycamore wrote:
Thu May 21, 2020 3:07 pm
Just to clarify, you're going to sell VTIAX prior to the date-of-record, stay in cash for a day or two, and then buy Developed+Emerging? The check here is to make sure you're okay with being out of the market for even a short time.
Yes.
However, last year VTIAX posted its dividends after Developed+Emerging so this might not even be an issue.
Total International's 2019 Q2 record date: 06/19/2019
Developed+Emerging's 2019 Q2 record date: 06/13/2019
In other words, Developed+Emerging might have already posted their dividend before I perform the exchange.
livesoft wrote:
Thu May 21, 2020 3:07 pm
It seems to me like you could do the exchanges tomorrow, then avoid the dividends June and exchange back in June. This waiting until June seems kinda like a waste to me.
If I assume the same dates as last year, I won't have enough time to miss the dividends.
Total International's 2019 Q2 record date: 06/19/2019
Developed+Emerging's 2019 Q2 record date: 06/13/2019

nalor511
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Joined: Mon Jul 27, 2015 1:00 am

Re: Critque my Tax Loss Harvesting plan

Post by nalor511 » Thu May 21, 2020 7:52 pm

You don't have to assume anything. The June dates are the same for Ftse all world, dev, emrg, and total intl. https://advisors.vanguard.com/insights/ ... tributions

So your plan will not work among these 4 funds, because the div date is the same. either choose another fund, or stay in cash for a day.

Topic Author
slamfire
Posts: 33
Joined: Thu Mar 30, 2017 7:35 am

Re: Critque my Tax Loss Harvesting plan

Post by slamfire » Fri May 22, 2020 7:28 am

nalor511 wrote:
Thu May 21, 2020 7:52 pm
You don't have to assume anything. The June dates are the same for Ftse all world, dev, emrg, and total intl. https://advisors.vanguard.com/insights/ ... tributions
Thank you nalor511, I had no idea this resource was available!

magicrat
Posts: 972
Joined: Sat Nov 29, 2014 7:04 pm

Re: Critque my Tax Loss Harvesting plan

Post by magicrat » Fri May 22, 2020 7:33 am

Seems complicated but is fine. I would exchange to VFWAX and only exchange back if there is a further loss.

nalor511
Posts: 681
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Re: Critque my Tax Loss Harvesting plan

Post by nalor511 » Fri May 22, 2020 12:58 pm

slamfire wrote:
Fri May 22, 2020 7:28 am
nalor511 wrote:
Thu May 21, 2020 7:52 pm
You don't have to assume anything. The June dates are the same for Ftse all world, dev, emrg, and total intl. https://advisors.vanguard.com/insights/ ... tributions
Thank you nalor511, I had no idea this resource was available!
AFAIK this year is the first time they've posted them in advance, but it's possible I just missed it in the past. But the fact that all the INTL funds are declaring on the same day makes it hard to find any TLH possibilities, unless you get pretty creative (i.e. the usual suspects won't work).

Vanguard Fan 1367
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Joined: Wed Feb 08, 2017 3:09 pm

Re: Critque my Tax Loss Harvesting plan

Post by Vanguard Fan 1367 » Fri May 22, 2020 2:00 pm

That AGI does complicate the TLH!
Last edited by Vanguard Fan 1367 on Fri May 22, 2020 2:40 pm, edited 1 time in total.
Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it."

nalor511
Posts: 681
Joined: Mon Jul 27, 2015 1:00 am

Re: Critque my Tax Loss Harvesting plan

Post by nalor511 » Fri May 22, 2020 2:33 pm

Vanguard Fan 1367 wrote:
Fri May 22, 2020 2:00 pm
As volatile as the market is I wouldn’t worry about dividends. If you have the loss Tuesday I would consider taking it Tuesday. I don’t like to be out of the market so if you can come up with a plan you like to sell and quickly get back in without doing a wash sale I would consider doing that.
Agreed, but OP was asking specifically about missing dividends to lower AGI, which is why I mentioned it. Cheers

Vanguard Fan 1367
Posts: 1556
Joined: Wed Feb 08, 2017 3:09 pm

Re: Critque my Tax Loss Harvesting plan

Post by Vanguard Fan 1367 » Fri May 22, 2020 2:37 pm

nalor511 wrote:
Fri May 22, 2020 2:33 pm
Vanguard Fan 1367 wrote:
Fri May 22, 2020 2:00 pm
As volatile as the market is I wouldn’t worry about dividends. If you have the loss Tuesday I would consider taking it Tuesday. I don’t like to be out of the market so if you can come up with a plan you like to sell and quickly get back in without doing a wash sale I would consider doing that.
Agreed, but OP was asking specifically about missing dividends to lower AGI, which is why I mentioned it. Cheers
I appreciate your cleaning up my advice. I retired last Halloween and am starting to appreciate the AGI.
Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it."

Topic Author
slamfire
Posts: 33
Joined: Thu Mar 30, 2017 7:35 am

Re: Critque my Tax Loss Harvesting plan

Post by slamfire » Fri May 22, 2020 4:00 pm

magicrat wrote:
Fri May 22, 2020 7:33 am
Seems complicated but is fine. I would exchange to VFWAX and only exchange back if there is a further loss.
Thank you for the recommendation to use All-World ex-US (VFWAX) as a TLH partner. I didn't originally use it since VFWAX doesn't include small caps but after plotting Total International (VTIAX) on top of All-World ex-US (VFWAX) on Google finance, I now realize they have a near identical correlation. I guess this is the same situation how the S&P 500 has a near identical correlation with Total US Stock Market. I'll use VFWAX as my TLH partner.

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