TLH questions

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Topic Author
Mode32
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TLH questions

Post by Mode32 »

Never TLH'ed before and as much as I think I understand it, I get hung up on implementation.

I started a new taxable brokerage acct (cost basis = specific id) less than a year ago and I buy VTSAX every month in this acct with my last three purchases of VTSAX being Oct 2, Oct 7 and Oct 15. I wanted to TLH today by selling the lots with losses and purchase VLCAX with total estimated proceeds.
*Will I sill trigger a wash sale even if I avoid selling lots of VTSAX from Oct 2, Oct 7, and Oct 15 to avoid the 30 days prior purchase rule and only sell those lots of VTSAX before Sept 29th?

I was told by a Vanguard rep (I don't use Vanguard PAS) that I would trigger a wash sale based on my purchases in October so I would not be able to TLH at this time.
*If this is the case, am I suppose to alternate purchasing VTSAX one month with it's TLH partner (in my case, VLCAX) in my taxable to be able to avoid wash rules and take advantage of TLH of VTSAX in my taxable?

I'm having trouble understanding how I can TLH and avoid wash sale if I buy a VTSAX every month in my taxable, especially not knowing what the markets will do (i.e., a TLH opportunity will present itself). I'm probably misunderstanding the concept, but I thought the point was not to time the market. It almost feels like I need to anticipate TLH opportunities in the future and avoid buying VTSAX. Again, I'm probably missing something here, but any clarity would be helpful.
livesoft
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Re: TLH questions

Post by livesoft »

You should sell the lots with losses ... including the lots purchased in the past 30 days. If there is a wash sale (though I doubt there will be), then your Vanguard account will show that and then you can sell the lot marked as having its cost basis adjusted because of a wash sale.

Basically, you really don't have anything to worry about.

The 30-days-before rule only applies to shares that you keep in your account and do not sell. However, it is also instructive to create a wash sale which is not illegal and see what Vanguard (your brokerage) does to flag any wash sale. I think you will be pleasantly surprised.
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Topic Author
Mode32
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Re: TLH questions

Post by Mode32 »

livesoft wrote: Fri Oct 30, 2020 1:49 pm You should sell the lots with losses ... including the lots purchased in the past 30 days. If there is a wash sale (though I doubt there will be), then your Vanguard account will show that and then you can sell the lot marked as having its cost basis adjusted because of a wash sale.

Basically, you really don't have anything to worry about.

The 30-days-before rule only applies to shares that you keep in your account and do not sell. However, it is also instructive to create a wash sale which is not illegal and see what Vanguard (your brokerage) does to flag any wash sale. I think you will be pleasantly surprised.
Thank you for this Livesoft. Performed first TLH today, and hoping it goes well. You’re right, once I see how things play out, I will become more comfortable. Again, appreciate your time.
rkhusky
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Re: TLH questions

Post by rkhusky »

These types of wash sales are not that consequential, perhaps just requiring a bit of additional paperwork when you file your taxes.

On the other hand, buying VTSAX in any of your tax-advantaged accounts within +-30 days will cause a permanent disallowment of the loss.
Topic Author
Mode32
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Re: TLH questions

Post by Mode32 »

rkhusky wrote: Sat Oct 31, 2020 6:50 am These types of wash sales are not that consequential, perhaps just requiring a bit of additional paperwork when you file your taxes.

On the other hand, buying VTSAX in any of your tax-advantaged accounts within +-30 days will cause a permanent disallowment of the loss.
That’s a good point. Thankfully, we have most of our tax advantaged accts in S&P 500 index funds and our taxable accts in vtsax. We do have an old taxable acct with Vfiax and VGHAX (Vanguard healthcare fund) which we dont contribute to anymore (several years) and planning on having its dividends/distributions going start a vtsax within that acct.
livesoft
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Re: TLH questions

Post by livesoft »

So your account this morning should indicate whether you had any wash sale yesterday. If you look at the Cost Basis info for the shares you still own do you see any indication of a wash sale?
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Topic Author
Mode32
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Re: TLH questions

Post by Mode32 »

livesoft wrote: Sat Oct 31, 2020 12:12 pm So your account this morning should indicate whether you had any wash sale yesterday. If you look at the Cost Basis info for the shares you still own do you see any indication of a wash sale?
You were right; I was pleasantly surprised. I was still able to TLH those shares of VTSAX bought on Oct 2, 7 and 15 in addition to shares I purchased prior to 30 day rule.

*Still not fully sure why that was allowed based on wash sale rules (30 days prior and 30 days after), but no indication of wash sales in my account; is there a chance Vanguard made a mistake that I would need to cover in the future?

*If I did have a wash sale, what would I see?

Thanks again for your time.
rkhusky
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Re: TLH questions

Post by rkhusky »

Mode32 wrote: Sun Nov 01, 2020 4:58 pm
livesoft wrote: Sat Oct 31, 2020 12:12 pm So your account this morning should indicate whether you had any wash sale yesterday. If you look at the Cost Basis info for the shares you still own do you see any indication of a wash sale?
You were right; I was pleasantly surprised. I was still able to TLH those shares of VTSAX bought on Oct 2, 7 and 15 in addition to shares I purchased prior to 30 day rule.

*Still not fully sure why that was allowed based on wash sale rules (30 days prior and 30 days after), but no indication of wash sales in my account; is there a chance Vanguard made a mistake that I would need to cover in the future?

*If I did have a wash sale, what would I see?

Thanks again for your time.
For a wash sale to occur there needs to exist replacement shares. If any possible replacement shares were already sold (or perhaps nearly simultaneously sold), there won't be a wash sale.

If Vanguard flags a wash sale, there will be an indication on the shares that were sold for a loss that there was wash sale. Plus there will be an indication on the replacement shares that their basis was adjusted because of the wash sale.

Note that Vanguard will not flag all wash sales - only those that occur in the same taxable account between shares of the same fund. For example, Vanguard will not flag wash sales where the replacement shares are in other taxable account you have or your IRA or your 401k or your trust or any of your spouse's accounts or any of the accounts of a corporation that you control, or even in the same account when the investments are only substantially identical, but not identical. In all these cases, it is up to the taxpayer to identify the wash sale and report it in their tax return. [A caveat to the substantially identical issue is that I have not heard whether or not Vanguard will flag a wash sale between Investor, Admiral, and/or ETF share classes of the same fund in the same account.]
Topic Author
Mode32
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Re: TLH questions

Post by Mode32 »

rkhusky wrote: Mon Nov 02, 2020 8:37 am
Mode32 wrote: Sun Nov 01, 2020 4:58 pm
livesoft wrote: Sat Oct 31, 2020 12:12 pm So your account this morning should indicate whether you had any wash sale yesterday. If you look at the Cost Basis info for the shares you still own do you see any indication of a wash sale?
You were right; I was pleasantly surprised. I was still able to TLH those shares of VTSAX bought on Oct 2, 7 and 15 in addition to shares I purchased prior to 30 day rule.

*Still not fully sure why that was allowed based on wash sale rules (30 days prior and 30 days after), but no indication of wash sales in my account; is there a chance Vanguard made a mistake that I would need to cover in the future?

*If I did have a wash sale, what would I see?

Thanks again for your time.
For a wash sale to occur there needs to exist replacement shares. If any possible replacement shares were already sold (or perhaps nearly simultaneously sold), there won't be a wash sale.

If Vanguard flags a wash sale, there will be an indication on the shares that were sold for a loss that there was wash sale. Plus there will be an indication on the replacement shares that their basis was adjusted because of the wash sale.

Note that Vanguard will not flag all wash sales - only those that occur in the same taxable account between shares of the same fund. For example, Vanguard will not flag wash sales where the replacement shares are in other taxable account you have or your IRA or your 401k or your trust or any of your spouse's accounts or any of the accounts of a corporation that you control, or even in the same account when the investments are only substantially identical, but not identical. In all these cases, it is up to the taxpayer to identify the wash sale and report it in their tax return. [A caveat to the substantially identical issue is that I have not heard whether or not Vanguard will flag a wash sale between Investor, Admiral, and/or ETF share classes of the same fund in the same account.]
Thanks rkhusky for the added clarity.

As I mentioned earlier, the taxable accts (2 taxable brokerage accts & 2 UTMA's) I am actively contributing to at Vanguard currently are all VTSAX (note: these are all separate taxable accts that my wife and I own together), and I TLH in one of the taxable accts (sold VTSAX and bought VLCAX) on 10/30. We do have another taxable brokerage acct that we havn't contributed to at all in over 7 years which contains VFIAX and VGHAX; I will likely need to readdress how to handle VGHAX again in another post.

*Can I resume buying VTSAX in our other taxable acct and the 2 UTMA's now...or do I have to wait 30 days? I assume that I have to wait the 30 days to buy VTSAX, so I will likely just buy more VLCAX in the meantime.
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arcticpineapplecorp.
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Re: TLH questions

Post by arcticpineapplecorp. »

Mode32 wrote: Mon Nov 02, 2020 6:38 pm
rkhusky wrote: Mon Nov 02, 2020 8:37 am
Mode32 wrote: Sun Nov 01, 2020 4:58 pm
livesoft wrote: Sat Oct 31, 2020 12:12 pm So your account this morning should indicate whether you had any wash sale yesterday. If you look at the Cost Basis info for the shares you still own do you see any indication of a wash sale?
You were right; I was pleasantly surprised. I was still able to TLH those shares of VTSAX bought on Oct 2, 7 and 15 in addition to shares I purchased prior to 30 day rule.

*Still not fully sure why that was allowed based on wash sale rules (30 days prior and 30 days after), but no indication of wash sales in my account; is there a chance Vanguard made a mistake that I would need to cover in the future?

*If I did have a wash sale, what would I see?

Thanks again for your time.
For a wash sale to occur there needs to exist replacement shares. If any possible replacement shares were already sold (or perhaps nearly simultaneously sold), there won't be a wash sale.

If Vanguard flags a wash sale, there will be an indication on the shares that were sold for a loss that there was wash sale. Plus there will be an indication on the replacement shares that their basis was adjusted because of the wash sale.

Note that Vanguard will not flag all wash sales - only those that occur in the same taxable account between shares of the same fund. For example, Vanguard will not flag wash sales where the replacement shares are in other taxable account you have or your IRA or your 401k or your trust or any of your spouse's accounts or any of the accounts of a corporation that you control, or even in the same account when the investments are only substantially identical, but not identical. In all these cases, it is up to the taxpayer to identify the wash sale and report it in their tax return. [A caveat to the substantially identical issue is that I have not heard whether or not Vanguard will flag a wash sale between Investor, Admiral, and/or ETF share classes of the same fund in the same account.]
Thanks rkhusky for the added clarity.

As I mentioned earlier, the taxable accts (2 taxable brokerage accts & 2 UTMA's) I am actively contributing to at Vanguard currently are all VTSAX (note: these are all separate taxable accts that my wife and I own together), and I TLH in one of the taxable accts (sold VTSAX and bought VLCAX) on 10/30. We do have another taxable brokerage acct that we havn't contributed to at all in over 7 years which contains VFIAX and VGHAX; I will likely need to readdress how to handle VGHAX again in another post.

*Can I resume buying VTSAX in our other taxable acct and the 2 UTMA's now...or do I have to wait 30 days? I assume that I have to wait the 30 days to buy VTSAX, so I will likely just buy more VLCAX in the meantime.
if you sold vtsax shares at a loss you can not buy vtsax within 30 days in another taxable acct, unless you want a wash sale of the shares sold at a loss. either wait 30 days to buy vtsax or buy vlcax instead (or an S&P500 index would also be a suitable exchange).
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Topic Author
Mode32
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Re: TLH questions

Post by Mode32 »

arcticpineapplecorp. wrote: Mon Nov 02, 2020 7:33 pm
Mode32 wrote: Mon Nov 02, 2020 6:38 pm
rkhusky wrote: Mon Nov 02, 2020 8:37 am
Mode32 wrote: Sun Nov 01, 2020 4:58 pm
livesoft wrote: Sat Oct 31, 2020 12:12 pm So your account this morning should indicate whether you had any wash sale yesterday. If you look at the Cost Basis info for the shares you still own do you see any indication of a wash sale?
You were right; I was pleasantly surprised. I was still able to TLH those shares of VTSAX bought on Oct 2, 7 and 15 in addition to shares I purchased prior to 30 day rule.

*Still not fully sure why that was allowed based on wash sale rules (30 days prior and 30 days after), but no indication of wash sales in my account; is there a chance Vanguard made a mistake that I would need to cover in the future?

*If I did have a wash sale, what would I see?

Thanks again for your time.
For a wash sale to occur there needs to exist replacement shares. If any possible replacement shares were already sold (or perhaps nearly simultaneously sold), there won't be a wash sale.

If Vanguard flags a wash sale, there will be an indication on the shares that were sold for a loss that there was wash sale. Plus there will be an indication on the replacement shares that their basis was adjusted because of the wash sale.

Note that Vanguard will not flag all wash sales - only those that occur in the same taxable account between shares of the same fund. For example, Vanguard will not flag wash sales where the replacement shares are in other taxable account you have or your IRA or your 401k or your trust or any of your spouse's accounts or any of the accounts of a corporation that you control, or even in the same account when the investments are only substantially identical, but not identical. In all these cases, it is up to the taxpayer to identify the wash sale and report it in their tax return. [A caveat to the substantially identical issue is that I have not heard whether or not Vanguard will flag a wash sale between Investor, Admiral, and/or ETF share classes of the same fund in the same account.]
Thanks rkhusky for the added clarity.

As I mentioned earlier, the taxable accts (2 taxable brokerage accts & 2 UTMA's) I am actively contributing to at Vanguard currently are all VTSAX (note: these are all separate taxable accts that my wife and I own together), and I TLH in one of the taxable accts (sold VTSAX and bought VLCAX) on 10/30. We do have another taxable brokerage acct that we havn't contributed to at all in over 7 years which contains VFIAX and VGHAX; I will likely need to readdress how to handle VGHAX again in another post.

*Can I resume buying VTSAX in our other taxable acct and the 2 UTMA's now...or do I have to wait 30 days? I assume that I have to wait the 30 days to buy VTSAX, so I will likely just buy more VLCAX in the meantime.
if you sold vtsax shares at a loss you can not buy vtsax within 30 days in another taxable acct, unless you want a wash sale of the shares sold at a loss. either wait 30 days to buy vtsax or buy vlcax instead (or an S&P500 index would also be a suitable exchange).
Thanks, got it now!

*If I only have VTSAX in UTMA’s now and usually budget less than $3K a month contributions per UTMA Acct, does that mean it’s a good strategy (ideally) to have at least two similar funds (TLH partners) at admiral share levels (due to best ER’s) established in the taxable acct as early as possible? For this month, if I purchase a non-VTSAX fund (due to recent TLH) in UTMA’s, it would be investor shares that would just linger once the 30 days post TLH is up and resume VTSAX purchase.

*Just wondering how the ER’s change if after a TLH you have less than $3K of a fund that was initially Admiral shares (does that fund then become investor shares with higher ER’s)?

Thanks for your time.
MathIsMyWayr
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Re: TLH questions

Post by MathIsMyWayr »

rkhusky wrote: Mon Nov 02, 2020 8:37 am For a wash sale to occur there needs to exist replacement shares. If any possible replacement shares were already sold (or perhaps nearly simultaneously sold), there won't be a wash sale.
If I buy 100 shares of VTSAX for the first time and sell all of them at a loss a week later, isn't it a wash sale by its definition? However, since there are no shares to tag the loss on (to raise the cost basis for shares bought within +/- 30 days), the entire amount of the loss is released as a regular short term loss. It is like a flag against a defensive player and the opposing team declined the penalty. I am sure the penalty will still be on the record of the offending player.
rkhusky
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Re: TLH questions

Post by rkhusky »

MathIsMyWayr wrote: Tue Nov 03, 2020 12:13 am
rkhusky wrote: Mon Nov 02, 2020 8:37 am For a wash sale to occur there needs to exist replacement shares. If any possible replacement shares were already sold (or perhaps nearly simultaneously sold), there won't be a wash sale.
If I buy 100 shares of VTSAX for the first time and sell all of them at a loss a week later, isn't it a wash sale by its definition? However, since there are no shares to tag the loss on (to raise the cost basis for shares bought within +/- 30 days), the entire amount of the loss is released as a regular short term loss. It is like a flag against a defensive player and the opposing team declined the penalty. I am sure the penalty will still be on the record of the offending player.
Not a wash sale. A wash sale means that you cannot claim the loss on the shares sold. If you can claim the loss on those shares, it is not a wash sale.

Here is a different situation. You buy 100 shares of VTSAX in Aug 11 2020. You buy 100 shares of VTSAX Oct 27 2020. You own no other VTSAX. Both lots of shares are showing a loss on Nov 13, so you put in a order to sell both lots. Is there a wash sale?

Could be, depending on how the brokerage handles sales. If the brokerage sells the Aug 11 shares first, then there is a wash sale and the basis of the Oct 27 shares is adjusted. When the brokerage sells the Oct 27 shares a few microseconds later, you recoup your loss.

If the brokerage sells the Oct 27 shares first, then there is no wash sale because there exists no replacement shares purchased within 30 days. Likewise, when they sell the Aug 11 shares a few microseconds later.

Since you don't know which shares the brokerage will sell first, you will just have to wait to see if they declare a wash sale, after the fact. But it doesn't make much difference either way, other than, if the brokerage declares a wash sale, you may have to add an extra form (or perhaps just a couple of extra numbers) to your tax return.
rkhusky
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Re: TLH questions

Post by rkhusky »

Mode32 wrote: Mon Nov 02, 2020 9:52 pm *If I only have VTSAX in UTMA’s now and usually budget less than $3K a month contributions per UTMA Acct, does that mean it’s a good strategy (ideally) to have at least two similar funds (TLH partners) at admiral share levels (due to best ER’s) established in the taxable acct as early as possible? For this month, if I purchase a non-VTSAX fund (due to recent TLH) in UTMA’s, it would be investor shares that would just linger once the 30 days post TLH is up and resume VTSAX purchase.

*Just wondering how the ER’s change if after a TLH you have less than $3K of a fund that was initially Admiral shares (does that fund then become investor shares with higher ER’s)?

Thanks for your time.
I don't think you can buy Investor shares in any of the funds that offer Admiral shares with the $3K minimum. I don't know what happens when your balance drops below $3K due to market losses. Or even if you drop below $3K due to selling. They may drop you into Investor shares, since they still do exist.

There is little reason to have a TLH partner set up, in the sense of having money in the fund. I typically only TLH when there is several $100 in losses. It is unlikely that that would involve selling shares worth less than $3K. If it did, that is such a small amount, that I would have no problem putting it into cash. But if you plan to TLH small sums and you worry about having any of your money out of the market for a few days, then maybe it is worthwhile having $3K sitting in a TLH partner.

Are the UTMA's taxable or tax-advantaged? Typically you wouldn't be the owner of an UTMA, but a custodian or trustee. If you aren't the owner, then the wash sale statute may not apply. However, there is another statute that governs financial transactions between relatives that is more onerous than the wash sale statute, which I've come across here on Bogleheads, but can't remember at the moment. In any case, it would not be wise to use the UTMA's to try to get around the wash sale rules.

Edit: 26 U.S. Code § 267 talks about financial transactions between related persons. IRS Pub 550 has a section on related party transactions, where you get into trouble if the transactions are pre-arranged, but you don't have to worry about coincidental transactions.

From Pub 550 (Apr 3, 2020, pg 48):
Indirect transactions. You cannot deduct your loss on the sale of stock through your broker if, under a prearranged plan, a related party buys the same stock you had owned. This does not apply to a trade between related parties through an exchange that is purely coincidental and is not prearranged.
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